Download - Soviet Defence Spending Estimations.pdf
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 145
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983089983097983096983097983098 983124983144983141 983113983149983152983151983154983156983137983150983139983141 983156983151 983120983151983148983145983139983161 983107983154983141983137983156983145983151983150 983125983150983140983141983154 983122983141983137983143983137983150 983137983150983140 983111983151983154983138983137983139983144983141983158983133
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Nick Blackbourn 1
Introduction
Late American scholar Aaron Levenstein is said to have remarked that ldquoStatistics are like a bikini
What they reveal is suggestive but what they conceal is vitalrdquo The impact of Soviet defence
spending estimations in the late 1980rsquos was no different to Levensteinrsquos bikini analogy On the
surface the statistics appeared to unveil proof that the Soviet Union could be deemed an lsquoEvil
Empirersquo but further examination complicates matters considerably These calculations are regarded
as having had ldquohellipan important impact on US defence policyhelliprdquo and the extent to which this is true
in both America and the former Soviet Union is at the centre of this thesis
1
Current research regarding Soviet defence spending in the mid-1980rsquos is heavily focused on
the mechanics of their calculation The value of this focus is limited in that it offers little to the
understanding of how these statistics actually influenced the politics of Cold War governance in
both the United States and the Soviet Union In the post-Cold War climate the focus of study can
now shift with actual influence rather than degree of accuracy driving research Todayrsquos historians
are therefore able to address how these estimates however accurate affected Cold War governance
How did Mikhail Gorbachev and Ronald Reagan use this information Did they in fact use it at all
How much influence did the authors of such information hold In considering the final chapter of
the Cold War in the 1985 to 1989 period it is now apt to consider the relevance and importance of
statistical information such as Soviet defence spending rather than exclusively looking at how this
information was compiled
Comprehensive studies both advocating and dissimulating the Central Intelligence Agencyrsquos
(CIArsquos) Direct Costing effort to evaluate its accuracy exist and these studies are useful for this
1 Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo (College Station TexasAampM University Press 1998) pxii
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Nick Blackbourn 2
particular purpose and will be drawn upon during the course of this particular study2 The general
function of these studies the majority conducted pre-Soviet collapse was to offer an appraisal of
methodology in the hope of improving accuracy What is now needed however is a link between
the statistical analysis of Soviet defence spending and the way this information was then used by the
two Superpower administrations To achieve this objective two sections will address firstly the
leaderships of Reagan and Gorbachev and the relative importance of the defence sector within
them and secondly how useful these Soviet defence spending estimations were to these
administrations in driving policy
The first section will examine how the ideological drive of the individual leaders can be
interpreted which will enable the rationale behind decision-making to be examined Their
objectives for the military sector will also be discussed to show how intelligence estimations may
have subsequently been used to justify such actions Finally the influence of the military sphere on
the leadership will be considered this will scrutinise the extent to which proponents within the
military establishment were able to influence policy In addressing these aspects of Ronald
Reaganrsquos and Mikhail Gorbachevrsquos leaderships I hope to demonstrate how they approached defence
spending estimations and the relative importance within each administration they held3
The second section will address how useful the calculation of Soviet defence spending was
in assisting policy formation and the determination of Soviet aims The dearth of Soviet-created
defence spending statistics will be considered as well as the costing estimation efforts of the CIA
2 See Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo (College StationTexas AampM University Press 1998) and Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)3 For a study of Reaganrsquos and Gorbachevrsquos impact on the Cold War as individuals see Matlock J ldquo Reagan and
Gorbachev How the Cold War Endedrdquo (New York Random House 2004) and also Gaddis J ldquoThe Cold Warrdquo(London Allen Lane 2007) especially Chapter Six ldquoActorsrdquo
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Nick Blackbourn 3
This section will reveal the actual importance and relevance of Soviet defence estimates within the
two Cold War rivals
This thesis will conclude that the premise of calculating a monetary figure for Soviet
defence spending was flawed At best such a figure was a general and very vague guide to the
trend of Soviet defence spending for American decision makers In reality the lack of a market
system to set prices meant valuations of defence procurement were essentially meaningless to the
Soviet government Many have scathingly remarked Gorbachev himself included that the
inefficient government and economically predatory Soviet Defence Council failed to produce useful
price valuations of defence spending and that this limited the scope of Politburo governance But
then why should they have created such figures Prices were meaningless to the government they
set them Of more concern and of greater practical use was to gauge the opportunity cost of
approving certain procurement programmes
In this context it is clear how defence spending in monetary terms was unimportant to the
Soviet leadership Gorbachev whose premiership began in March 1985 distrusted the military and
sought to reduce its influence in the political and economic sphere His Perestroika programme to
reform the Russian economy included reducing the heavy economic burden of defence the purpose
of which Kotkin has argued was ldquohellipreclaiming the ideals of the October revolutionrdquo4
Reagan on the other hand openly sought to increase the power of the American military
and was consequently increasingly open to its influence The estimates of Soviet defence spending
were used by Reagan in ldquohellipone of the biggest and most enduring political battles in Washington
the annual struggle over the size of the US defence budgethelliprdquo5 However it will be shown that such
calculations were beset with inaccuracies pure guesswork and were cherry picked by an
4 Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford University Press 2001) p1745 Firth amp Noren ldquoSoviet Defence Spendingrdquo pxii
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Nick Blackbourn 4
administration determined to spend heavily on defence Reagan chose to use the aspects of CIA
estimations that demonstrated what he wanted to see communist militarism against which he could
lead a lsquocrusadersquo6
This study will conclude the work of the evaluations regarding CIA estimates of Soviet
Defence spending and assess the importance of these estimates on the Superpowersrsquo leadership In
America such estimations were crude and often hopelessly inaccurate throughout the Cold War
particularly in its closing stages These studies were unhelpful and misleading as the true costs of
maintaining Soviet military capabilities were revealed under lsquoglasnostrsquo In the Soviet Union such
statistics for the most part did not exist The impact of Soviet Defence estimations on the decision-
making process was limited The actions of Reagan and Gorbachev are better explained by their
own preconceptions as a staunch anti-Communist and a faithful Communist respectively
Chapter I ndash The Administrations of Mikhail Gorbachev and Ronald Reagan
To understand how defence-spending estimates were used the ambitions of the two Superpower
leaders for their relevant countries are an important area to consider The statistics themselves were
simply numbers on paper but it is how they were subsequently acted upon that makes them
significant In this section I will demonstrate what Reagan and Gorbachev saw as the purpose and
direction of their time in power particularly within the defence sector To achieve this I will
examine their worldview (ie how they viewed their perspective positions within the Cold War and
how this would change over time) their objectives for the military and the influence held by the
defence sector within each administration
6 Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan 2006)
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Nick Blackbourn 5
There is a clear contrast between the dynamics of leadership in the US and USSR between
1985 and 1989 Reagan led his country towards militarism and thus the sector may be presumed to
have held significant influence over the president but in the Soviet Union the opposite was true as
Gorbachev sought to demilitarise his country and reduce its influence within government7 By
examining the interactions between the military and the decision-making processes of the Reagan
and Gorbachev leaderships we can scrutinise the military-politico relationship in both the US and
the Soviet Union
The Worldviews of President Reagan and Premier Gorbachev
In the Soviet Union Reagan saw a powerful adversary and a sworn enemy of the United States of
America He was passionately anti-communist so much so that after his January 20th
1981
inauguration as President he actively sought to end deacutetente and take the offensive and bring about
the end of communism This was outlined in his National Security Decision Directive seventy-five8
ldquoReagan wanted to take the strategic initiative and not be forced into a reactive positionrdquo 9 These
views were fermented in Reaganrsquos Hollywood years during his time as a lsquoone man battalionrsquo facing
communists during their alleged lsquotakeover of Hollywoodrsquo in the 1950rsquos 10
Reagan had lsquolearnt what
communists were capable ofrsquo and henceforth despised them
ldquoNow I knew from firsthand experience how communists used lies deceit violence or
any other tactic that suited them to advance the cause of Soviet expansionism I knew
7 For details on Reaganrsquos Military build up see Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo(Ithaca Cornell University Press 1992)8 See Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)9 Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994) p13010 Reagan R ldquo An American Liferdquo (London 1991) p114
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Nick Blackbourn 6
from the experience of hand-to-hand combat that America faced no other more insidious
or evil threat than that of communismrdquo11
Reagan was keen to instigate the downfall of the Soviet Union How much credit he can
individually command for the fall of communism is a topic beyond the scope of this study however
there is no doubt that the president actively sought to end the rule of the Communist Party in the
Eastern Bloc It was an individually driven ambition within his administration ldquoAt the time no one
in the administration (with the exception of Ronald Reagan) ever articulated a vision of a collapsing
Soviet edificerdquo12 This is not to suggest that Reagan was indeed a lsquoone man battalionrsquo in the fight
against communism but with his clear distain for the communist system any decision that would
weaken the USSR would be looked upon kindly by the president A classic case in point is
Reaganrsquos own brainchild the Strategic Defence Initiative and his rationale behind undertaking such
a project is ably outlined by Schweizer
ldquoWhile the presidentrsquos interest in SDI was largely based on his vision of a world no
longer facing nuclear peril the system was also pursued because of the strain it would
place on the Soviet economyrdquo13
The policies and spending initiatives undertaken during the Reagan presidency wherever possible
included aspects that could undermine the Soviet system Another example is Reaganrsquos relationship
with Saudi Arabia which ultimately lowered world oil prices and devastated Soviet foreign
currency earnings as a result These anti-Soviet initiatives undoubtedly represent the tone of
Reaganrsquos years in the White House The release of National Security Decision Directive seventy-
five on January 17th 1983 signed by Reagan clearly summed this subversive attitude towards the
Soviet Union which highlighted the key objectives of policy to be
11 Ibid p11512 Schweizer ldquoVictoryrdquo p28213 Ibid p135
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Nick Blackbourn 7
ldquohellipexternal resistance to Soviet imperialism internal pressure on the USSR to weaken
the sources of Soviet imperialismhellipthe US must convey clearly to Moscow that
unacceptable costs will incur costs that would outweigh any gainhelliprdquo14
Although Garthoff has questioned the true significance of NSDD seventy-five (ldquohellipthe ambiguity in
the presidentrsquos directive reflected Reaganrsquos ambivalencerdquo15
) there is no doubt that President
Reagan did believe that the Cold War could be won and the policy choices he made reflected this
attitude Five thousand miles away in Moscow Gorbachev viewed the future of Cold War tensions
in very different terms
Mikhail Gorbachev appointed General Secretary of the Communist Party on 11
th
March
1985 was a faithful communist and according to Kotkin a ldquohelliptrue believerhelliprdquo16
He still thought
that the Party ldquohellipwas a force capable of uniting societyhelliprdquo17 The Premier was also a realist
stemming from his days as a student at Moscow State Universityrsquos law faculty His pragmatic
approach meant he
ldquohellipwanted to see a world bound by sensible codes of conduct He was also a deal-
maker by nature and preferred to create a world in which he could haggle and persuade
rather than be locked in military confrontationrdquo 18
In order to achieve his goals for the political and economic restructuring under lsquoPerestroikarsquo he felt
the Soviet Union was obligated ldquohellipto change our relationship with the West particularly the US
and bring the costly and dangerous arms race to an endrdquo19 A Cold War de-escalation was necessary
14 National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquo ldquoFederation of American
Scientists Intelligence Resource Programrdquo lthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]see also Bailey N ldquoThe Strategy That Won the Cold Warrdquo p2915 Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo (Washington DCThe Brookings Institute 1994) p3316 Kotkin ldquo Armageddon Averted rdquo p3117 Gorbachev M ldquo Memoirsrdquo (London Bantam 1996) p16818 Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997) p6019 Gorbachev ldquo Memoirsrdquo p171
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Nick Blackbourn 8
to give the Soviet economy breathing space to lower its defence commitments and re-orientate itself
away from economic militarism
ldquoYes wersquove achieved strategic military parity with the Unites States And no-one
counted how much it cost ushellipLetrsquos make a thorough analysis of what a strong modern
army is what ensuring security means what the quality of security consists of And
when we know how much all this costs we can cut out the restrdquo20
To ideologically justify these cuts in military spending to the Politburo and Defence Council who
remained convinced of western hostility towards them Gorbachev attempted to lower the external
threat presented by the US
21
This was not an uncommon practice according to Meyer ldquohellipSoviet
military doctrine can be changed to fit economic assumptions In essence if you canrsquot afford the
requirements change the threatrdquo22
Much of Gorbachevrsquos rhetoric emanated from his professed distain for conflict and nuclear
proliferation ldquoThe arms race like nuclear war itself cannot be wonhellipSecurity is a political
problem and it can be solved only by political meansrdquo23 Gorbachev was too young to remember
the horrors of the Second World War that dominated the decisions made by the older members of
the Politburo He rejected the policy of continued military build-up to prevent a repeat of the
surprise Nazi invasion in June 1941 and instead highlighted the importance of farsighted diplomacy
to ensure Soviet security24 On April 26th 1986 the ldquoChernobyl disasterrdquo furthered his anti-military
disposition which was regarded by Gorbachev as ldquohellipa lsquofinal warningrsquohellipChernobyl has left a strong
20 Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park Pennsylvania State UniversityPress 2000) p19221 See Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins 1987)22 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco 1997) p21723 Gorbachev ldquoMemoirsrdquo p18524 Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson T ldquoSoldiers and the Soviet
State Civil-Military Relations from Brezhnev to Gorbachevrdquo (Princeton Princeton University Press 1990) p78
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Nick Blackbourn 9
anti-nuclear streak in Gorbachevrsquos thinkingrdquo25 The Soviet Premier was forced into demilitarisation
by the economic straitjacket the Soviet Union found itself in but it was a measure he was more than
happy to pursue in his attempts to attain a lsquohuman facersquo for Socialism26
Aside from a shared distain for nuclear weapons we can see a marked contrast in how the
two leaders viewed the world and their position within it Reagan wanted a final victory whereas
Gorbachev hoped to back down and alleviate Cold War tension to provide breathing space for
structural reforms to take effect We now turn to how these views were manifested in the two
leadersrsquo military objectives and outcomes
The Military Objectives of President Reagan and Premier Gorbachev
Reagan wanted to escalate and lsquowinrsquo the Cold War and thus proceeded to practise confrontation in
foreign policy backed by increased arms spending Reagan stated as late as 1986 that
ldquohellipthe threat from Soviet forces conventional and strategic from the Soviet drive for
domination from the increase in espionage and state terror remains great This is reality
Closing our eyes will not make reality disappearrdquo27
In a tongue-in-cheek address on August 11 1984 he quipped ldquoIrsquom pleased to tell you today
thathellipbombing [of Russia] begins in five minutesrdquo28 Albeit a joke the address shows the hostile
mentality of the president To defeat the Soviet Union even without a lsquohotrsquo war military strength
was vital Building military strength was a signal of intent It provided an increased capability of
25 Reagan ldquoAn American Liferdquo p71026 Kotkin ldquo Armageddon Averted rdquo p5727 Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4 1986rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed130407]28 Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
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Nick Blackbourn 10
military action and also presented an economic challenge to Soviet Union to maintain parity (and
later as doctrine altered sufficiency) Creating strong Armed Forces was obviously a military
decision but the impact on the USSR was perhaps most importantly economic and Reagan was
well aware William Clark Reaganrsquos National Security Advisor between 1982 and 1983 explains
that
ldquoRonald Reagan wanted a complementary relationship between the US military
builduphellipand economic security policies directed at MoscowhellipFrankly our intention
was to divert priority Soviet resources to meeting future US capabilities beyond their
grasp and to persuade Moscow that they would not prevail in a toe-to-toe technological
competitionrdquo29
These may well be the words of a man attempting to cement his own contribution to the downfall of
the Soviet Union but his summary of the intentions of the Reagan build-up are corroborated by
Soviet Marshal Ogarkov is his book lsquoAlways in Readiness to Defend the Fatherlandrsquo in which he
highlights his own concerns over the pace of American technology30
Aside from his desire for freedom to ldquohelliptranscend communismhelliprdquo Reaganrsquos goal was to
restore American national pride following the negative reaction to the Vietnam years and the
apparent successes of communism in the 1970rsquos such as the recognition of Soviet dominated
Eastern Europe after the Helsinki Accords on August 1st 1975 and the advancement of
Communism in Latin America throughout the decade 31 One way Reagan sought to achieve this
29 Schweizer ldquoVictoryrdquo p13230 Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982) see also Weickhardt G ldquoTheWorld According To Ogarkovrdquo in ldquo International Security 8rdquo (Spring 1984) pp182-531 Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 17 1981rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed130407]
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Nick Blackbourn 11
goal was to shake-up the American military and restore its prestige in society in addition to
strengthening its physical power
ldquohellipthere were many problems facing our nation the tragic neglect of our military
establishment high unemployment and an ailing economy the continuing expansion of
communism abroadhellipBut to me none was more serious than the fact America had lost
faith in itselfrdquo32 ldquoI told the Joint Chiefs of Staff that I wanted to make our men and
women proud to wear their uniforms againrdquo33
For Reagan the military held an important position within American society and as such he actively
sought to improve the power and standing of the Armed Forces In his opinion a military revival
would spearhead a spiritual revival34
The strengthening of the defence sector was in many ways
independent of the confrontational foreign policy that was outlined in NSDD seventy-five in its
own right the president wanted America to be lsquoproudrsquo once again Thus the build-up of US armed
forces was a keystone of domestic policy as well as being a vital component of foreign policy
The same was not true in the Soviet Union Gorbachev was not as sympathetic to military
concerns as previous Soviet leaders his priorities clearly lay away from the defence sector and he
sought to remove this hitherto ubiquitous bias within the Soviet system Gorbachev referred to a
meeting where
ldquoDmitry Fedorovich [Soviet Defence Minister 1976 - 1984] remarked casually that
he was fully aware that lsquodefence and breadrsquo were the key issues I corrected this
statement to me lsquobread and defencersquo was the right order of prioritiesrdquo35
32 Reagan ldquoAn American Liferdquo p21933 Ibid p23534 Ibid p21935 Gorbachev ldquoMemoirsrdquo p136
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Nick Blackbourn 12
Though we can question the reliability of his memoirs which may well be presented in a
self-promoting manner Gorbachevrsquos actions in this period lend credence to his claim For example
the easy removal of military figures from power ldquohellipclearly show[s] that Soviet political leaders
[did] not instinctively agree with the priorities of the military establishmenthelliprdquo36
The Soviet
Premier was committed to reducing the grip of militarism over Soviet society and this was achieved
by delivering ldquohellipa series of deliberate symbolic slights of high commandrdquo37
Behind his desire to thaw the Cold War lay Gorbachevrsquos goal to demilitarise the Soviet Union
both economically and politically As Anatoly Chernayaev personal advisor on foreign affairs to
Gorbachev recalls
ldquo[It was] an imperative for Gorbachev that we had to put an end to the Cold War that
we had to reduce our military budget significantly that we had to limit our military
industrial complex in some way For him it was absolutely clear that would have to
negotiate with President Reaganhelliprdquo38
The rationale for bias in Chernayaevrsquos testimony is limited His statement reveals the emphasis of
policy rather than any of his own potential prejudice for or against Gorbachev as a person or as a
leader Furthermore the removal of the uncooperative military leader Soviet Defence Minister
Sokolov in 1987 demonstrates this trend Thus Gorbachev in his attempts to reform the Soviet
Union sought to instigate a decline in the power of the military first politically and then physically
in order to reduce the economic burden that such a large force placed on the Soviet economy
Evidently there was a clear contrast in geopolitical aspirations between the two
Superpowers Reagan harboured ambitions to increase Americarsquos military power in order that she
36 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p21737 Colton amp Gustafson ldquoSoldiers and the Staterdquo p3238 Schweizer ldquoVictoryrdquo p238
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Nick Blackbourn 13
may take the initiative and end the Cold War Schweizer a contemporary political journalist in
Washington believes ldquoReagan had deeper ideological commitments and a strategic agenda that
went beyond real-politikhellipReagan not only spoke of the lsquoevil empirersquo and Marxism-Leninismrsquos
ending up on the lsquoash heap of historyrsquo he believed itrdquo39
The situation was quite the opposite in the
Soviet Union Gorbachev a pragmatist wanted hostilities to subside in order to allow the economic
and indeed political restructuring to permit the reduction of the military burden in the Soviet
Union His unilateral demobilisation of five hundred thousand Soviet troops announced at the UN
in 1988 shows his commitment to this direction in policy
The contrasting trends of militarization in America and demilitarization in the Soviet Union
would suggest a similar contrast in the influence of the military within each regime and this will
now be considered
Influence of the Defence Sectors in the USA and the USSR under Reagan and Gorbachev
The question of the influence of the military sector in Reaganrsquos and Gorbachevrsquos administrations
was an important one Reagan was much more open to the information presented to him from
within the military sphere than was Gorbachev Immediately following his inauguration Reagan had
authorised a thirty-three billion dollar increase in defence spending without even consulting the
military for their needs40 With this level of fiscal commitment to the American defence sector
Reagan was likely to utilise the information provided by his intelligence services Reaganrsquos
appointment of Bill Casey to head the CIA offers an insight as to the role of the Pentagon in the
Reagan administration
39 Ibid p17140 Garthoff ldquoThe Great Transitionrdquo p33
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Nick Blackbourn 14
Prior to his acceptance of position Casey demanded an office in the White House and his
inclusion in policy discussion Reagan accepted
ldquoCasey demanded an office in the White House complex He wanted easy access to
White House personal and the president not exile in Langley In politics as in
commercial real estate location is everything He could drop by the Oval Office and
informally influence policyrdquo41
The CIA chief now had direct access to the president He presented raw data on the Soviet
economy and defence-spending patterns were regularly passed onto the president Reagan was
guided towards lsquoshockingrsquo statistics on Soviet military spending which required urgent US
attention These reports Reagan said led him to muse that ldquohellipsomeone in the Kremlin had to
realize [sic] that in arming themselves to the teeth they were aggravating the desperate economic
problems in the Soviet Unionhelliprdquo42
However one must question whether these reports actually lead
to this conclusion or whether they simply corroborated the presidentrsquos own view Did the CIA
provide information that helped determine Americarsquos spending policies under Reagan or did it
simply justify policies Reagan had already chosen prior to Office It appears that rather than
assisting the formulation of policy directly information from the intelligence community was used
because it ldquohellipproved useful in supporting the US defence builduphelliprdquo43
Ronald Reaganrsquos
lsquocrusadingrsquo attitude towards ending communism meant that he leant much credence to CIA findings
when it supported his anti-Soviet Union view His intelligence budget increase of thirteen percent in
1981 perhaps ensured Americarsquos defence analyst community to follow Reaganrsquos own hard-line
view of the Soviet Union lest they politically weaken the hand that had increased their funding 44
41 Schweizer ldquoVictoryrdquo p242 Reagan ldquo An American Liferdquo p26843 Firth amp Noren ldquoSoviet Defence Spendingrdquo p8744 Schweizer ldquoVictoryrdquo p62
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Nick Blackbourn 15
Firth and Noren dispute this accusation contending that Soviet defence spending estimations were
ldquohellipnever cooked for political purposesrdquo45
However Firth and Noren were themselves part of the
CIA team that created such data and as such are unlikely to slight their own professional integrity
As Freedman recognises it is important to consider that Estimators do not work in ivory towers
but in a community with its own political structure They find themselves amongst colleagues who
share a particular adversary image and come perhaps subconsciously to adopt this image as their
own46
Intelligence integrity aside Reagan selectively utilised the information provided by his
military advisors Facts and figures presented to him particularly by the CIA were an important
tool in policy justification Schweizer argues that ldquo[Casey] was a key figure in the emerging United
States foreign policyhelliphis effect on policy is hard to underestimaterdquo47 However when CIA
information did not lend credence to Reaganrsquos own worldview it was disregarded The influence of
the military over Reagan is questionable its importance in the justification of policy rather than its
determination is not The stature if not the influence of the military in American politics grew
during the 1980rsquos
There could be no greater contrast to this trend of the increasing importance of the military
in politics than Gorbachevrsquos Premiership in the Soviet Union from 1985 Gorbachev was the first
Premier to have achieved his position without association with the military sector in his political
career For the first time in the history of the Soviet Union no serving military official sat in the
Politburo The reason for historian Galeotti was that ldquo[Gorbachev]helliplacked patience with his
generals and soon realized [sic] that he would have to rely on outmanoeuvring rather than
45 Firth amp Noren ldquoSoviet Defence Spendingrdquo p746 Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1977) p18547 Schweizer ldquoVictoryrdquo p14
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Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
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Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3345
Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3445
Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3945
Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 245
Nick Blackbourn 1
Introduction
Late American scholar Aaron Levenstein is said to have remarked that ldquoStatistics are like a bikini
What they reveal is suggestive but what they conceal is vitalrdquo The impact of Soviet defence
spending estimations in the late 1980rsquos was no different to Levensteinrsquos bikini analogy On the
surface the statistics appeared to unveil proof that the Soviet Union could be deemed an lsquoEvil
Empirersquo but further examination complicates matters considerably These calculations are regarded
as having had ldquohellipan important impact on US defence policyhelliprdquo and the extent to which this is true
in both America and the former Soviet Union is at the centre of this thesis
1
Current research regarding Soviet defence spending in the mid-1980rsquos is heavily focused on
the mechanics of their calculation The value of this focus is limited in that it offers little to the
understanding of how these statistics actually influenced the politics of Cold War governance in
both the United States and the Soviet Union In the post-Cold War climate the focus of study can
now shift with actual influence rather than degree of accuracy driving research Todayrsquos historians
are therefore able to address how these estimates however accurate affected Cold War governance
How did Mikhail Gorbachev and Ronald Reagan use this information Did they in fact use it at all
How much influence did the authors of such information hold In considering the final chapter of
the Cold War in the 1985 to 1989 period it is now apt to consider the relevance and importance of
statistical information such as Soviet defence spending rather than exclusively looking at how this
information was compiled
Comprehensive studies both advocating and dissimulating the Central Intelligence Agencyrsquos
(CIArsquos) Direct Costing effort to evaluate its accuracy exist and these studies are useful for this
1 Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo (College Station TexasAampM University Press 1998) pxii
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 345
Nick Blackbourn 2
particular purpose and will be drawn upon during the course of this particular study2 The general
function of these studies the majority conducted pre-Soviet collapse was to offer an appraisal of
methodology in the hope of improving accuracy What is now needed however is a link between
the statistical analysis of Soviet defence spending and the way this information was then used by the
two Superpower administrations To achieve this objective two sections will address firstly the
leaderships of Reagan and Gorbachev and the relative importance of the defence sector within
them and secondly how useful these Soviet defence spending estimations were to these
administrations in driving policy
The first section will examine how the ideological drive of the individual leaders can be
interpreted which will enable the rationale behind decision-making to be examined Their
objectives for the military sector will also be discussed to show how intelligence estimations may
have subsequently been used to justify such actions Finally the influence of the military sphere on
the leadership will be considered this will scrutinise the extent to which proponents within the
military establishment were able to influence policy In addressing these aspects of Ronald
Reaganrsquos and Mikhail Gorbachevrsquos leaderships I hope to demonstrate how they approached defence
spending estimations and the relative importance within each administration they held3
The second section will address how useful the calculation of Soviet defence spending was
in assisting policy formation and the determination of Soviet aims The dearth of Soviet-created
defence spending statistics will be considered as well as the costing estimation efforts of the CIA
2 See Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo (College StationTexas AampM University Press 1998) and Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)3 For a study of Reaganrsquos and Gorbachevrsquos impact on the Cold War as individuals see Matlock J ldquo Reagan and
Gorbachev How the Cold War Endedrdquo (New York Random House 2004) and also Gaddis J ldquoThe Cold Warrdquo(London Allen Lane 2007) especially Chapter Six ldquoActorsrdquo
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 445
Nick Blackbourn 3
This section will reveal the actual importance and relevance of Soviet defence estimates within the
two Cold War rivals
This thesis will conclude that the premise of calculating a monetary figure for Soviet
defence spending was flawed At best such a figure was a general and very vague guide to the
trend of Soviet defence spending for American decision makers In reality the lack of a market
system to set prices meant valuations of defence procurement were essentially meaningless to the
Soviet government Many have scathingly remarked Gorbachev himself included that the
inefficient government and economically predatory Soviet Defence Council failed to produce useful
price valuations of defence spending and that this limited the scope of Politburo governance But
then why should they have created such figures Prices were meaningless to the government they
set them Of more concern and of greater practical use was to gauge the opportunity cost of
approving certain procurement programmes
In this context it is clear how defence spending in monetary terms was unimportant to the
Soviet leadership Gorbachev whose premiership began in March 1985 distrusted the military and
sought to reduce its influence in the political and economic sphere His Perestroika programme to
reform the Russian economy included reducing the heavy economic burden of defence the purpose
of which Kotkin has argued was ldquohellipreclaiming the ideals of the October revolutionrdquo4
Reagan on the other hand openly sought to increase the power of the American military
and was consequently increasingly open to its influence The estimates of Soviet defence spending
were used by Reagan in ldquohellipone of the biggest and most enduring political battles in Washington
the annual struggle over the size of the US defence budgethelliprdquo5 However it will be shown that such
calculations were beset with inaccuracies pure guesswork and were cherry picked by an
4 Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford University Press 2001) p1745 Firth amp Noren ldquoSoviet Defence Spendingrdquo pxii
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 545
Nick Blackbourn 4
administration determined to spend heavily on defence Reagan chose to use the aspects of CIA
estimations that demonstrated what he wanted to see communist militarism against which he could
lead a lsquocrusadersquo6
This study will conclude the work of the evaluations regarding CIA estimates of Soviet
Defence spending and assess the importance of these estimates on the Superpowersrsquo leadership In
America such estimations were crude and often hopelessly inaccurate throughout the Cold War
particularly in its closing stages These studies were unhelpful and misleading as the true costs of
maintaining Soviet military capabilities were revealed under lsquoglasnostrsquo In the Soviet Union such
statistics for the most part did not exist The impact of Soviet Defence estimations on the decision-
making process was limited The actions of Reagan and Gorbachev are better explained by their
own preconceptions as a staunch anti-Communist and a faithful Communist respectively
Chapter I ndash The Administrations of Mikhail Gorbachev and Ronald Reagan
To understand how defence-spending estimates were used the ambitions of the two Superpower
leaders for their relevant countries are an important area to consider The statistics themselves were
simply numbers on paper but it is how they were subsequently acted upon that makes them
significant In this section I will demonstrate what Reagan and Gorbachev saw as the purpose and
direction of their time in power particularly within the defence sector To achieve this I will
examine their worldview (ie how they viewed their perspective positions within the Cold War and
how this would change over time) their objectives for the military and the influence held by the
defence sector within each administration
6 Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan 2006)
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Nick Blackbourn 5
There is a clear contrast between the dynamics of leadership in the US and USSR between
1985 and 1989 Reagan led his country towards militarism and thus the sector may be presumed to
have held significant influence over the president but in the Soviet Union the opposite was true as
Gorbachev sought to demilitarise his country and reduce its influence within government7 By
examining the interactions between the military and the decision-making processes of the Reagan
and Gorbachev leaderships we can scrutinise the military-politico relationship in both the US and
the Soviet Union
The Worldviews of President Reagan and Premier Gorbachev
In the Soviet Union Reagan saw a powerful adversary and a sworn enemy of the United States of
America He was passionately anti-communist so much so that after his January 20th
1981
inauguration as President he actively sought to end deacutetente and take the offensive and bring about
the end of communism This was outlined in his National Security Decision Directive seventy-five8
ldquoReagan wanted to take the strategic initiative and not be forced into a reactive positionrdquo 9 These
views were fermented in Reaganrsquos Hollywood years during his time as a lsquoone man battalionrsquo facing
communists during their alleged lsquotakeover of Hollywoodrsquo in the 1950rsquos 10
Reagan had lsquolearnt what
communists were capable ofrsquo and henceforth despised them
ldquoNow I knew from firsthand experience how communists used lies deceit violence or
any other tactic that suited them to advance the cause of Soviet expansionism I knew
7 For details on Reaganrsquos Military build up see Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo(Ithaca Cornell University Press 1992)8 See Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)9 Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994) p13010 Reagan R ldquo An American Liferdquo (London 1991) p114
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Nick Blackbourn 6
from the experience of hand-to-hand combat that America faced no other more insidious
or evil threat than that of communismrdquo11
Reagan was keen to instigate the downfall of the Soviet Union How much credit he can
individually command for the fall of communism is a topic beyond the scope of this study however
there is no doubt that the president actively sought to end the rule of the Communist Party in the
Eastern Bloc It was an individually driven ambition within his administration ldquoAt the time no one
in the administration (with the exception of Ronald Reagan) ever articulated a vision of a collapsing
Soviet edificerdquo12 This is not to suggest that Reagan was indeed a lsquoone man battalionrsquo in the fight
against communism but with his clear distain for the communist system any decision that would
weaken the USSR would be looked upon kindly by the president A classic case in point is
Reaganrsquos own brainchild the Strategic Defence Initiative and his rationale behind undertaking such
a project is ably outlined by Schweizer
ldquoWhile the presidentrsquos interest in SDI was largely based on his vision of a world no
longer facing nuclear peril the system was also pursued because of the strain it would
place on the Soviet economyrdquo13
The policies and spending initiatives undertaken during the Reagan presidency wherever possible
included aspects that could undermine the Soviet system Another example is Reaganrsquos relationship
with Saudi Arabia which ultimately lowered world oil prices and devastated Soviet foreign
currency earnings as a result These anti-Soviet initiatives undoubtedly represent the tone of
Reaganrsquos years in the White House The release of National Security Decision Directive seventy-
five on January 17th 1983 signed by Reagan clearly summed this subversive attitude towards the
Soviet Union which highlighted the key objectives of policy to be
11 Ibid p11512 Schweizer ldquoVictoryrdquo p28213 Ibid p135
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Nick Blackbourn 7
ldquohellipexternal resistance to Soviet imperialism internal pressure on the USSR to weaken
the sources of Soviet imperialismhellipthe US must convey clearly to Moscow that
unacceptable costs will incur costs that would outweigh any gainhelliprdquo14
Although Garthoff has questioned the true significance of NSDD seventy-five (ldquohellipthe ambiguity in
the presidentrsquos directive reflected Reaganrsquos ambivalencerdquo15
) there is no doubt that President
Reagan did believe that the Cold War could be won and the policy choices he made reflected this
attitude Five thousand miles away in Moscow Gorbachev viewed the future of Cold War tensions
in very different terms
Mikhail Gorbachev appointed General Secretary of the Communist Party on 11
th
March
1985 was a faithful communist and according to Kotkin a ldquohelliptrue believerhelliprdquo16
He still thought
that the Party ldquohellipwas a force capable of uniting societyhelliprdquo17 The Premier was also a realist
stemming from his days as a student at Moscow State Universityrsquos law faculty His pragmatic
approach meant he
ldquohellipwanted to see a world bound by sensible codes of conduct He was also a deal-
maker by nature and preferred to create a world in which he could haggle and persuade
rather than be locked in military confrontationrdquo 18
In order to achieve his goals for the political and economic restructuring under lsquoPerestroikarsquo he felt
the Soviet Union was obligated ldquohellipto change our relationship with the West particularly the US
and bring the costly and dangerous arms race to an endrdquo19 A Cold War de-escalation was necessary
14 National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquo ldquoFederation of American
Scientists Intelligence Resource Programrdquo lthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]see also Bailey N ldquoThe Strategy That Won the Cold Warrdquo p2915 Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo (Washington DCThe Brookings Institute 1994) p3316 Kotkin ldquo Armageddon Averted rdquo p3117 Gorbachev M ldquo Memoirsrdquo (London Bantam 1996) p16818 Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997) p6019 Gorbachev ldquo Memoirsrdquo p171
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Nick Blackbourn 8
to give the Soviet economy breathing space to lower its defence commitments and re-orientate itself
away from economic militarism
ldquoYes wersquove achieved strategic military parity with the Unites States And no-one
counted how much it cost ushellipLetrsquos make a thorough analysis of what a strong modern
army is what ensuring security means what the quality of security consists of And
when we know how much all this costs we can cut out the restrdquo20
To ideologically justify these cuts in military spending to the Politburo and Defence Council who
remained convinced of western hostility towards them Gorbachev attempted to lower the external
threat presented by the US
21
This was not an uncommon practice according to Meyer ldquohellipSoviet
military doctrine can be changed to fit economic assumptions In essence if you canrsquot afford the
requirements change the threatrdquo22
Much of Gorbachevrsquos rhetoric emanated from his professed distain for conflict and nuclear
proliferation ldquoThe arms race like nuclear war itself cannot be wonhellipSecurity is a political
problem and it can be solved only by political meansrdquo23 Gorbachev was too young to remember
the horrors of the Second World War that dominated the decisions made by the older members of
the Politburo He rejected the policy of continued military build-up to prevent a repeat of the
surprise Nazi invasion in June 1941 and instead highlighted the importance of farsighted diplomacy
to ensure Soviet security24 On April 26th 1986 the ldquoChernobyl disasterrdquo furthered his anti-military
disposition which was regarded by Gorbachev as ldquohellipa lsquofinal warningrsquohellipChernobyl has left a strong
20 Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park Pennsylvania State UniversityPress 2000) p19221 See Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins 1987)22 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco 1997) p21723 Gorbachev ldquoMemoirsrdquo p18524 Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson T ldquoSoldiers and the Soviet
State Civil-Military Relations from Brezhnev to Gorbachevrdquo (Princeton Princeton University Press 1990) p78
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Nick Blackbourn 9
anti-nuclear streak in Gorbachevrsquos thinkingrdquo25 The Soviet Premier was forced into demilitarisation
by the economic straitjacket the Soviet Union found itself in but it was a measure he was more than
happy to pursue in his attempts to attain a lsquohuman facersquo for Socialism26
Aside from a shared distain for nuclear weapons we can see a marked contrast in how the
two leaders viewed the world and their position within it Reagan wanted a final victory whereas
Gorbachev hoped to back down and alleviate Cold War tension to provide breathing space for
structural reforms to take effect We now turn to how these views were manifested in the two
leadersrsquo military objectives and outcomes
The Military Objectives of President Reagan and Premier Gorbachev
Reagan wanted to escalate and lsquowinrsquo the Cold War and thus proceeded to practise confrontation in
foreign policy backed by increased arms spending Reagan stated as late as 1986 that
ldquohellipthe threat from Soviet forces conventional and strategic from the Soviet drive for
domination from the increase in espionage and state terror remains great This is reality
Closing our eyes will not make reality disappearrdquo27
In a tongue-in-cheek address on August 11 1984 he quipped ldquoIrsquom pleased to tell you today
thathellipbombing [of Russia] begins in five minutesrdquo28 Albeit a joke the address shows the hostile
mentality of the president To defeat the Soviet Union even without a lsquohotrsquo war military strength
was vital Building military strength was a signal of intent It provided an increased capability of
25 Reagan ldquoAn American Liferdquo p71026 Kotkin ldquo Armageddon Averted rdquo p5727 Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4 1986rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed130407]28 Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
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Nick Blackbourn 10
military action and also presented an economic challenge to Soviet Union to maintain parity (and
later as doctrine altered sufficiency) Creating strong Armed Forces was obviously a military
decision but the impact on the USSR was perhaps most importantly economic and Reagan was
well aware William Clark Reaganrsquos National Security Advisor between 1982 and 1983 explains
that
ldquoRonald Reagan wanted a complementary relationship between the US military
builduphellipand economic security policies directed at MoscowhellipFrankly our intention
was to divert priority Soviet resources to meeting future US capabilities beyond their
grasp and to persuade Moscow that they would not prevail in a toe-to-toe technological
competitionrdquo29
These may well be the words of a man attempting to cement his own contribution to the downfall of
the Soviet Union but his summary of the intentions of the Reagan build-up are corroborated by
Soviet Marshal Ogarkov is his book lsquoAlways in Readiness to Defend the Fatherlandrsquo in which he
highlights his own concerns over the pace of American technology30
Aside from his desire for freedom to ldquohelliptranscend communismhelliprdquo Reaganrsquos goal was to
restore American national pride following the negative reaction to the Vietnam years and the
apparent successes of communism in the 1970rsquos such as the recognition of Soviet dominated
Eastern Europe after the Helsinki Accords on August 1st 1975 and the advancement of
Communism in Latin America throughout the decade 31 One way Reagan sought to achieve this
29 Schweizer ldquoVictoryrdquo p13230 Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982) see also Weickhardt G ldquoTheWorld According To Ogarkovrdquo in ldquo International Security 8rdquo (Spring 1984) pp182-531 Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 17 1981rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed130407]
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Nick Blackbourn 11
goal was to shake-up the American military and restore its prestige in society in addition to
strengthening its physical power
ldquohellipthere were many problems facing our nation the tragic neglect of our military
establishment high unemployment and an ailing economy the continuing expansion of
communism abroadhellipBut to me none was more serious than the fact America had lost
faith in itselfrdquo32 ldquoI told the Joint Chiefs of Staff that I wanted to make our men and
women proud to wear their uniforms againrdquo33
For Reagan the military held an important position within American society and as such he actively
sought to improve the power and standing of the Armed Forces In his opinion a military revival
would spearhead a spiritual revival34
The strengthening of the defence sector was in many ways
independent of the confrontational foreign policy that was outlined in NSDD seventy-five in its
own right the president wanted America to be lsquoproudrsquo once again Thus the build-up of US armed
forces was a keystone of domestic policy as well as being a vital component of foreign policy
The same was not true in the Soviet Union Gorbachev was not as sympathetic to military
concerns as previous Soviet leaders his priorities clearly lay away from the defence sector and he
sought to remove this hitherto ubiquitous bias within the Soviet system Gorbachev referred to a
meeting where
ldquoDmitry Fedorovich [Soviet Defence Minister 1976 - 1984] remarked casually that
he was fully aware that lsquodefence and breadrsquo were the key issues I corrected this
statement to me lsquobread and defencersquo was the right order of prioritiesrdquo35
32 Reagan ldquoAn American Liferdquo p21933 Ibid p23534 Ibid p21935 Gorbachev ldquoMemoirsrdquo p136
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Nick Blackbourn 12
Though we can question the reliability of his memoirs which may well be presented in a
self-promoting manner Gorbachevrsquos actions in this period lend credence to his claim For example
the easy removal of military figures from power ldquohellipclearly show[s] that Soviet political leaders
[did] not instinctively agree with the priorities of the military establishmenthelliprdquo36
The Soviet
Premier was committed to reducing the grip of militarism over Soviet society and this was achieved
by delivering ldquohellipa series of deliberate symbolic slights of high commandrdquo37
Behind his desire to thaw the Cold War lay Gorbachevrsquos goal to demilitarise the Soviet Union
both economically and politically As Anatoly Chernayaev personal advisor on foreign affairs to
Gorbachev recalls
ldquo[It was] an imperative for Gorbachev that we had to put an end to the Cold War that
we had to reduce our military budget significantly that we had to limit our military
industrial complex in some way For him it was absolutely clear that would have to
negotiate with President Reaganhelliprdquo38
The rationale for bias in Chernayaevrsquos testimony is limited His statement reveals the emphasis of
policy rather than any of his own potential prejudice for or against Gorbachev as a person or as a
leader Furthermore the removal of the uncooperative military leader Soviet Defence Minister
Sokolov in 1987 demonstrates this trend Thus Gorbachev in his attempts to reform the Soviet
Union sought to instigate a decline in the power of the military first politically and then physically
in order to reduce the economic burden that such a large force placed on the Soviet economy
Evidently there was a clear contrast in geopolitical aspirations between the two
Superpowers Reagan harboured ambitions to increase Americarsquos military power in order that she
36 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p21737 Colton amp Gustafson ldquoSoldiers and the Staterdquo p3238 Schweizer ldquoVictoryrdquo p238
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Nick Blackbourn 13
may take the initiative and end the Cold War Schweizer a contemporary political journalist in
Washington believes ldquoReagan had deeper ideological commitments and a strategic agenda that
went beyond real-politikhellipReagan not only spoke of the lsquoevil empirersquo and Marxism-Leninismrsquos
ending up on the lsquoash heap of historyrsquo he believed itrdquo39
The situation was quite the opposite in the
Soviet Union Gorbachev a pragmatist wanted hostilities to subside in order to allow the economic
and indeed political restructuring to permit the reduction of the military burden in the Soviet
Union His unilateral demobilisation of five hundred thousand Soviet troops announced at the UN
in 1988 shows his commitment to this direction in policy
The contrasting trends of militarization in America and demilitarization in the Soviet Union
would suggest a similar contrast in the influence of the military within each regime and this will
now be considered
Influence of the Defence Sectors in the USA and the USSR under Reagan and Gorbachev
The question of the influence of the military sector in Reaganrsquos and Gorbachevrsquos administrations
was an important one Reagan was much more open to the information presented to him from
within the military sphere than was Gorbachev Immediately following his inauguration Reagan had
authorised a thirty-three billion dollar increase in defence spending without even consulting the
military for their needs40 With this level of fiscal commitment to the American defence sector
Reagan was likely to utilise the information provided by his intelligence services Reaganrsquos
appointment of Bill Casey to head the CIA offers an insight as to the role of the Pentagon in the
Reagan administration
39 Ibid p17140 Garthoff ldquoThe Great Transitionrdquo p33
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Nick Blackbourn 14
Prior to his acceptance of position Casey demanded an office in the White House and his
inclusion in policy discussion Reagan accepted
ldquoCasey demanded an office in the White House complex He wanted easy access to
White House personal and the president not exile in Langley In politics as in
commercial real estate location is everything He could drop by the Oval Office and
informally influence policyrdquo41
The CIA chief now had direct access to the president He presented raw data on the Soviet
economy and defence-spending patterns were regularly passed onto the president Reagan was
guided towards lsquoshockingrsquo statistics on Soviet military spending which required urgent US
attention These reports Reagan said led him to muse that ldquohellipsomeone in the Kremlin had to
realize [sic] that in arming themselves to the teeth they were aggravating the desperate economic
problems in the Soviet Unionhelliprdquo42
However one must question whether these reports actually lead
to this conclusion or whether they simply corroborated the presidentrsquos own view Did the CIA
provide information that helped determine Americarsquos spending policies under Reagan or did it
simply justify policies Reagan had already chosen prior to Office It appears that rather than
assisting the formulation of policy directly information from the intelligence community was used
because it ldquohellipproved useful in supporting the US defence builduphelliprdquo43
Ronald Reaganrsquos
lsquocrusadingrsquo attitude towards ending communism meant that he leant much credence to CIA findings
when it supported his anti-Soviet Union view His intelligence budget increase of thirteen percent in
1981 perhaps ensured Americarsquos defence analyst community to follow Reaganrsquos own hard-line
view of the Soviet Union lest they politically weaken the hand that had increased their funding 44
41 Schweizer ldquoVictoryrdquo p242 Reagan ldquo An American Liferdquo p26843 Firth amp Noren ldquoSoviet Defence Spendingrdquo p8744 Schweizer ldquoVictoryrdquo p62
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Nick Blackbourn 15
Firth and Noren dispute this accusation contending that Soviet defence spending estimations were
ldquohellipnever cooked for political purposesrdquo45
However Firth and Noren were themselves part of the
CIA team that created such data and as such are unlikely to slight their own professional integrity
As Freedman recognises it is important to consider that Estimators do not work in ivory towers
but in a community with its own political structure They find themselves amongst colleagues who
share a particular adversary image and come perhaps subconsciously to adopt this image as their
own46
Intelligence integrity aside Reagan selectively utilised the information provided by his
military advisors Facts and figures presented to him particularly by the CIA were an important
tool in policy justification Schweizer argues that ldquo[Casey] was a key figure in the emerging United
States foreign policyhelliphis effect on policy is hard to underestimaterdquo47 However when CIA
information did not lend credence to Reaganrsquos own worldview it was disregarded The influence of
the military over Reagan is questionable its importance in the justification of policy rather than its
determination is not The stature if not the influence of the military in American politics grew
during the 1980rsquos
There could be no greater contrast to this trend of the increasing importance of the military
in politics than Gorbachevrsquos Premiership in the Soviet Union from 1985 Gorbachev was the first
Premier to have achieved his position without association with the military sector in his political
career For the first time in the history of the Soviet Union no serving military official sat in the
Politburo The reason for historian Galeotti was that ldquo[Gorbachev]helliplacked patience with his
generals and soon realized [sic] that he would have to rely on outmanoeuvring rather than
45 Firth amp Noren ldquoSoviet Defence Spendingrdquo p746 Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1977) p18547 Schweizer ldquoVictoryrdquo p14
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Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
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Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 345
Nick Blackbourn 2
particular purpose and will be drawn upon during the course of this particular study2 The general
function of these studies the majority conducted pre-Soviet collapse was to offer an appraisal of
methodology in the hope of improving accuracy What is now needed however is a link between
the statistical analysis of Soviet defence spending and the way this information was then used by the
two Superpower administrations To achieve this objective two sections will address firstly the
leaderships of Reagan and Gorbachev and the relative importance of the defence sector within
them and secondly how useful these Soviet defence spending estimations were to these
administrations in driving policy
The first section will examine how the ideological drive of the individual leaders can be
interpreted which will enable the rationale behind decision-making to be examined Their
objectives for the military sector will also be discussed to show how intelligence estimations may
have subsequently been used to justify such actions Finally the influence of the military sphere on
the leadership will be considered this will scrutinise the extent to which proponents within the
military establishment were able to influence policy In addressing these aspects of Ronald
Reaganrsquos and Mikhail Gorbachevrsquos leaderships I hope to demonstrate how they approached defence
spending estimations and the relative importance within each administration they held3
The second section will address how useful the calculation of Soviet defence spending was
in assisting policy formation and the determination of Soviet aims The dearth of Soviet-created
defence spending statistics will be considered as well as the costing estimation efforts of the CIA
2 See Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo (College StationTexas AampM University Press 1998) and Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)3 For a study of Reaganrsquos and Gorbachevrsquos impact on the Cold War as individuals see Matlock J ldquo Reagan and
Gorbachev How the Cold War Endedrdquo (New York Random House 2004) and also Gaddis J ldquoThe Cold Warrdquo(London Allen Lane 2007) especially Chapter Six ldquoActorsrdquo
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 445
Nick Blackbourn 3
This section will reveal the actual importance and relevance of Soviet defence estimates within the
two Cold War rivals
This thesis will conclude that the premise of calculating a monetary figure for Soviet
defence spending was flawed At best such a figure was a general and very vague guide to the
trend of Soviet defence spending for American decision makers In reality the lack of a market
system to set prices meant valuations of defence procurement were essentially meaningless to the
Soviet government Many have scathingly remarked Gorbachev himself included that the
inefficient government and economically predatory Soviet Defence Council failed to produce useful
price valuations of defence spending and that this limited the scope of Politburo governance But
then why should they have created such figures Prices were meaningless to the government they
set them Of more concern and of greater practical use was to gauge the opportunity cost of
approving certain procurement programmes
In this context it is clear how defence spending in monetary terms was unimportant to the
Soviet leadership Gorbachev whose premiership began in March 1985 distrusted the military and
sought to reduce its influence in the political and economic sphere His Perestroika programme to
reform the Russian economy included reducing the heavy economic burden of defence the purpose
of which Kotkin has argued was ldquohellipreclaiming the ideals of the October revolutionrdquo4
Reagan on the other hand openly sought to increase the power of the American military
and was consequently increasingly open to its influence The estimates of Soviet defence spending
were used by Reagan in ldquohellipone of the biggest and most enduring political battles in Washington
the annual struggle over the size of the US defence budgethelliprdquo5 However it will be shown that such
calculations were beset with inaccuracies pure guesswork and were cherry picked by an
4 Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford University Press 2001) p1745 Firth amp Noren ldquoSoviet Defence Spendingrdquo pxii
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 545
Nick Blackbourn 4
administration determined to spend heavily on defence Reagan chose to use the aspects of CIA
estimations that demonstrated what he wanted to see communist militarism against which he could
lead a lsquocrusadersquo6
This study will conclude the work of the evaluations regarding CIA estimates of Soviet
Defence spending and assess the importance of these estimates on the Superpowersrsquo leadership In
America such estimations were crude and often hopelessly inaccurate throughout the Cold War
particularly in its closing stages These studies were unhelpful and misleading as the true costs of
maintaining Soviet military capabilities were revealed under lsquoglasnostrsquo In the Soviet Union such
statistics for the most part did not exist The impact of Soviet Defence estimations on the decision-
making process was limited The actions of Reagan and Gorbachev are better explained by their
own preconceptions as a staunch anti-Communist and a faithful Communist respectively
Chapter I ndash The Administrations of Mikhail Gorbachev and Ronald Reagan
To understand how defence-spending estimates were used the ambitions of the two Superpower
leaders for their relevant countries are an important area to consider The statistics themselves were
simply numbers on paper but it is how they were subsequently acted upon that makes them
significant In this section I will demonstrate what Reagan and Gorbachev saw as the purpose and
direction of their time in power particularly within the defence sector To achieve this I will
examine their worldview (ie how they viewed their perspective positions within the Cold War and
how this would change over time) their objectives for the military and the influence held by the
defence sector within each administration
6 Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan 2006)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 645
Nick Blackbourn 5
There is a clear contrast between the dynamics of leadership in the US and USSR between
1985 and 1989 Reagan led his country towards militarism and thus the sector may be presumed to
have held significant influence over the president but in the Soviet Union the opposite was true as
Gorbachev sought to demilitarise his country and reduce its influence within government7 By
examining the interactions between the military and the decision-making processes of the Reagan
and Gorbachev leaderships we can scrutinise the military-politico relationship in both the US and
the Soviet Union
The Worldviews of President Reagan and Premier Gorbachev
In the Soviet Union Reagan saw a powerful adversary and a sworn enemy of the United States of
America He was passionately anti-communist so much so that after his January 20th
1981
inauguration as President he actively sought to end deacutetente and take the offensive and bring about
the end of communism This was outlined in his National Security Decision Directive seventy-five8
ldquoReagan wanted to take the strategic initiative and not be forced into a reactive positionrdquo 9 These
views were fermented in Reaganrsquos Hollywood years during his time as a lsquoone man battalionrsquo facing
communists during their alleged lsquotakeover of Hollywoodrsquo in the 1950rsquos 10
Reagan had lsquolearnt what
communists were capable ofrsquo and henceforth despised them
ldquoNow I knew from firsthand experience how communists used lies deceit violence or
any other tactic that suited them to advance the cause of Soviet expansionism I knew
7 For details on Reaganrsquos Military build up see Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo(Ithaca Cornell University Press 1992)8 See Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)9 Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994) p13010 Reagan R ldquo An American Liferdquo (London 1991) p114
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 745
Nick Blackbourn 6
from the experience of hand-to-hand combat that America faced no other more insidious
or evil threat than that of communismrdquo11
Reagan was keen to instigate the downfall of the Soviet Union How much credit he can
individually command for the fall of communism is a topic beyond the scope of this study however
there is no doubt that the president actively sought to end the rule of the Communist Party in the
Eastern Bloc It was an individually driven ambition within his administration ldquoAt the time no one
in the administration (with the exception of Ronald Reagan) ever articulated a vision of a collapsing
Soviet edificerdquo12 This is not to suggest that Reagan was indeed a lsquoone man battalionrsquo in the fight
against communism but with his clear distain for the communist system any decision that would
weaken the USSR would be looked upon kindly by the president A classic case in point is
Reaganrsquos own brainchild the Strategic Defence Initiative and his rationale behind undertaking such
a project is ably outlined by Schweizer
ldquoWhile the presidentrsquos interest in SDI was largely based on his vision of a world no
longer facing nuclear peril the system was also pursued because of the strain it would
place on the Soviet economyrdquo13
The policies and spending initiatives undertaken during the Reagan presidency wherever possible
included aspects that could undermine the Soviet system Another example is Reaganrsquos relationship
with Saudi Arabia which ultimately lowered world oil prices and devastated Soviet foreign
currency earnings as a result These anti-Soviet initiatives undoubtedly represent the tone of
Reaganrsquos years in the White House The release of National Security Decision Directive seventy-
five on January 17th 1983 signed by Reagan clearly summed this subversive attitude towards the
Soviet Union which highlighted the key objectives of policy to be
11 Ibid p11512 Schweizer ldquoVictoryrdquo p28213 Ibid p135
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Nick Blackbourn 7
ldquohellipexternal resistance to Soviet imperialism internal pressure on the USSR to weaken
the sources of Soviet imperialismhellipthe US must convey clearly to Moscow that
unacceptable costs will incur costs that would outweigh any gainhelliprdquo14
Although Garthoff has questioned the true significance of NSDD seventy-five (ldquohellipthe ambiguity in
the presidentrsquos directive reflected Reaganrsquos ambivalencerdquo15
) there is no doubt that President
Reagan did believe that the Cold War could be won and the policy choices he made reflected this
attitude Five thousand miles away in Moscow Gorbachev viewed the future of Cold War tensions
in very different terms
Mikhail Gorbachev appointed General Secretary of the Communist Party on 11
th
March
1985 was a faithful communist and according to Kotkin a ldquohelliptrue believerhelliprdquo16
He still thought
that the Party ldquohellipwas a force capable of uniting societyhelliprdquo17 The Premier was also a realist
stemming from his days as a student at Moscow State Universityrsquos law faculty His pragmatic
approach meant he
ldquohellipwanted to see a world bound by sensible codes of conduct He was also a deal-
maker by nature and preferred to create a world in which he could haggle and persuade
rather than be locked in military confrontationrdquo 18
In order to achieve his goals for the political and economic restructuring under lsquoPerestroikarsquo he felt
the Soviet Union was obligated ldquohellipto change our relationship with the West particularly the US
and bring the costly and dangerous arms race to an endrdquo19 A Cold War de-escalation was necessary
14 National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquo ldquoFederation of American
Scientists Intelligence Resource Programrdquo lthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]see also Bailey N ldquoThe Strategy That Won the Cold Warrdquo p2915 Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo (Washington DCThe Brookings Institute 1994) p3316 Kotkin ldquo Armageddon Averted rdquo p3117 Gorbachev M ldquo Memoirsrdquo (London Bantam 1996) p16818 Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997) p6019 Gorbachev ldquo Memoirsrdquo p171
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 945
Nick Blackbourn 8
to give the Soviet economy breathing space to lower its defence commitments and re-orientate itself
away from economic militarism
ldquoYes wersquove achieved strategic military parity with the Unites States And no-one
counted how much it cost ushellipLetrsquos make a thorough analysis of what a strong modern
army is what ensuring security means what the quality of security consists of And
when we know how much all this costs we can cut out the restrdquo20
To ideologically justify these cuts in military spending to the Politburo and Defence Council who
remained convinced of western hostility towards them Gorbachev attempted to lower the external
threat presented by the US
21
This was not an uncommon practice according to Meyer ldquohellipSoviet
military doctrine can be changed to fit economic assumptions In essence if you canrsquot afford the
requirements change the threatrdquo22
Much of Gorbachevrsquos rhetoric emanated from his professed distain for conflict and nuclear
proliferation ldquoThe arms race like nuclear war itself cannot be wonhellipSecurity is a political
problem and it can be solved only by political meansrdquo23 Gorbachev was too young to remember
the horrors of the Second World War that dominated the decisions made by the older members of
the Politburo He rejected the policy of continued military build-up to prevent a repeat of the
surprise Nazi invasion in June 1941 and instead highlighted the importance of farsighted diplomacy
to ensure Soviet security24 On April 26th 1986 the ldquoChernobyl disasterrdquo furthered his anti-military
disposition which was regarded by Gorbachev as ldquohellipa lsquofinal warningrsquohellipChernobyl has left a strong
20 Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park Pennsylvania State UniversityPress 2000) p19221 See Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins 1987)22 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco 1997) p21723 Gorbachev ldquoMemoirsrdquo p18524 Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson T ldquoSoldiers and the Soviet
State Civil-Military Relations from Brezhnev to Gorbachevrdquo (Princeton Princeton University Press 1990) p78
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Nick Blackbourn 9
anti-nuclear streak in Gorbachevrsquos thinkingrdquo25 The Soviet Premier was forced into demilitarisation
by the economic straitjacket the Soviet Union found itself in but it was a measure he was more than
happy to pursue in his attempts to attain a lsquohuman facersquo for Socialism26
Aside from a shared distain for nuclear weapons we can see a marked contrast in how the
two leaders viewed the world and their position within it Reagan wanted a final victory whereas
Gorbachev hoped to back down and alleviate Cold War tension to provide breathing space for
structural reforms to take effect We now turn to how these views were manifested in the two
leadersrsquo military objectives and outcomes
The Military Objectives of President Reagan and Premier Gorbachev
Reagan wanted to escalate and lsquowinrsquo the Cold War and thus proceeded to practise confrontation in
foreign policy backed by increased arms spending Reagan stated as late as 1986 that
ldquohellipthe threat from Soviet forces conventional and strategic from the Soviet drive for
domination from the increase in espionage and state terror remains great This is reality
Closing our eyes will not make reality disappearrdquo27
In a tongue-in-cheek address on August 11 1984 he quipped ldquoIrsquom pleased to tell you today
thathellipbombing [of Russia] begins in five minutesrdquo28 Albeit a joke the address shows the hostile
mentality of the president To defeat the Soviet Union even without a lsquohotrsquo war military strength
was vital Building military strength was a signal of intent It provided an increased capability of
25 Reagan ldquoAn American Liferdquo p71026 Kotkin ldquo Armageddon Averted rdquo p5727 Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4 1986rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed130407]28 Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
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Nick Blackbourn 10
military action and also presented an economic challenge to Soviet Union to maintain parity (and
later as doctrine altered sufficiency) Creating strong Armed Forces was obviously a military
decision but the impact on the USSR was perhaps most importantly economic and Reagan was
well aware William Clark Reaganrsquos National Security Advisor between 1982 and 1983 explains
that
ldquoRonald Reagan wanted a complementary relationship between the US military
builduphellipand economic security policies directed at MoscowhellipFrankly our intention
was to divert priority Soviet resources to meeting future US capabilities beyond their
grasp and to persuade Moscow that they would not prevail in a toe-to-toe technological
competitionrdquo29
These may well be the words of a man attempting to cement his own contribution to the downfall of
the Soviet Union but his summary of the intentions of the Reagan build-up are corroborated by
Soviet Marshal Ogarkov is his book lsquoAlways in Readiness to Defend the Fatherlandrsquo in which he
highlights his own concerns over the pace of American technology30
Aside from his desire for freedom to ldquohelliptranscend communismhelliprdquo Reaganrsquos goal was to
restore American national pride following the negative reaction to the Vietnam years and the
apparent successes of communism in the 1970rsquos such as the recognition of Soviet dominated
Eastern Europe after the Helsinki Accords on August 1st 1975 and the advancement of
Communism in Latin America throughout the decade 31 One way Reagan sought to achieve this
29 Schweizer ldquoVictoryrdquo p13230 Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982) see also Weickhardt G ldquoTheWorld According To Ogarkovrdquo in ldquo International Security 8rdquo (Spring 1984) pp182-531 Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 17 1981rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed130407]
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Nick Blackbourn 11
goal was to shake-up the American military and restore its prestige in society in addition to
strengthening its physical power
ldquohellipthere were many problems facing our nation the tragic neglect of our military
establishment high unemployment and an ailing economy the continuing expansion of
communism abroadhellipBut to me none was more serious than the fact America had lost
faith in itselfrdquo32 ldquoI told the Joint Chiefs of Staff that I wanted to make our men and
women proud to wear their uniforms againrdquo33
For Reagan the military held an important position within American society and as such he actively
sought to improve the power and standing of the Armed Forces In his opinion a military revival
would spearhead a spiritual revival34
The strengthening of the defence sector was in many ways
independent of the confrontational foreign policy that was outlined in NSDD seventy-five in its
own right the president wanted America to be lsquoproudrsquo once again Thus the build-up of US armed
forces was a keystone of domestic policy as well as being a vital component of foreign policy
The same was not true in the Soviet Union Gorbachev was not as sympathetic to military
concerns as previous Soviet leaders his priorities clearly lay away from the defence sector and he
sought to remove this hitherto ubiquitous bias within the Soviet system Gorbachev referred to a
meeting where
ldquoDmitry Fedorovich [Soviet Defence Minister 1976 - 1984] remarked casually that
he was fully aware that lsquodefence and breadrsquo were the key issues I corrected this
statement to me lsquobread and defencersquo was the right order of prioritiesrdquo35
32 Reagan ldquoAn American Liferdquo p21933 Ibid p23534 Ibid p21935 Gorbachev ldquoMemoirsrdquo p136
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Nick Blackbourn 12
Though we can question the reliability of his memoirs which may well be presented in a
self-promoting manner Gorbachevrsquos actions in this period lend credence to his claim For example
the easy removal of military figures from power ldquohellipclearly show[s] that Soviet political leaders
[did] not instinctively agree with the priorities of the military establishmenthelliprdquo36
The Soviet
Premier was committed to reducing the grip of militarism over Soviet society and this was achieved
by delivering ldquohellipa series of deliberate symbolic slights of high commandrdquo37
Behind his desire to thaw the Cold War lay Gorbachevrsquos goal to demilitarise the Soviet Union
both economically and politically As Anatoly Chernayaev personal advisor on foreign affairs to
Gorbachev recalls
ldquo[It was] an imperative for Gorbachev that we had to put an end to the Cold War that
we had to reduce our military budget significantly that we had to limit our military
industrial complex in some way For him it was absolutely clear that would have to
negotiate with President Reaganhelliprdquo38
The rationale for bias in Chernayaevrsquos testimony is limited His statement reveals the emphasis of
policy rather than any of his own potential prejudice for or against Gorbachev as a person or as a
leader Furthermore the removal of the uncooperative military leader Soviet Defence Minister
Sokolov in 1987 demonstrates this trend Thus Gorbachev in his attempts to reform the Soviet
Union sought to instigate a decline in the power of the military first politically and then physically
in order to reduce the economic burden that such a large force placed on the Soviet economy
Evidently there was a clear contrast in geopolitical aspirations between the two
Superpowers Reagan harboured ambitions to increase Americarsquos military power in order that she
36 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p21737 Colton amp Gustafson ldquoSoldiers and the Staterdquo p3238 Schweizer ldquoVictoryrdquo p238
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Nick Blackbourn 13
may take the initiative and end the Cold War Schweizer a contemporary political journalist in
Washington believes ldquoReagan had deeper ideological commitments and a strategic agenda that
went beyond real-politikhellipReagan not only spoke of the lsquoevil empirersquo and Marxism-Leninismrsquos
ending up on the lsquoash heap of historyrsquo he believed itrdquo39
The situation was quite the opposite in the
Soviet Union Gorbachev a pragmatist wanted hostilities to subside in order to allow the economic
and indeed political restructuring to permit the reduction of the military burden in the Soviet
Union His unilateral demobilisation of five hundred thousand Soviet troops announced at the UN
in 1988 shows his commitment to this direction in policy
The contrasting trends of militarization in America and demilitarization in the Soviet Union
would suggest a similar contrast in the influence of the military within each regime and this will
now be considered
Influence of the Defence Sectors in the USA and the USSR under Reagan and Gorbachev
The question of the influence of the military sector in Reaganrsquos and Gorbachevrsquos administrations
was an important one Reagan was much more open to the information presented to him from
within the military sphere than was Gorbachev Immediately following his inauguration Reagan had
authorised a thirty-three billion dollar increase in defence spending without even consulting the
military for their needs40 With this level of fiscal commitment to the American defence sector
Reagan was likely to utilise the information provided by his intelligence services Reaganrsquos
appointment of Bill Casey to head the CIA offers an insight as to the role of the Pentagon in the
Reagan administration
39 Ibid p17140 Garthoff ldquoThe Great Transitionrdquo p33
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Nick Blackbourn 14
Prior to his acceptance of position Casey demanded an office in the White House and his
inclusion in policy discussion Reagan accepted
ldquoCasey demanded an office in the White House complex He wanted easy access to
White House personal and the president not exile in Langley In politics as in
commercial real estate location is everything He could drop by the Oval Office and
informally influence policyrdquo41
The CIA chief now had direct access to the president He presented raw data on the Soviet
economy and defence-spending patterns were regularly passed onto the president Reagan was
guided towards lsquoshockingrsquo statistics on Soviet military spending which required urgent US
attention These reports Reagan said led him to muse that ldquohellipsomeone in the Kremlin had to
realize [sic] that in arming themselves to the teeth they were aggravating the desperate economic
problems in the Soviet Unionhelliprdquo42
However one must question whether these reports actually lead
to this conclusion or whether they simply corroborated the presidentrsquos own view Did the CIA
provide information that helped determine Americarsquos spending policies under Reagan or did it
simply justify policies Reagan had already chosen prior to Office It appears that rather than
assisting the formulation of policy directly information from the intelligence community was used
because it ldquohellipproved useful in supporting the US defence builduphelliprdquo43
Ronald Reaganrsquos
lsquocrusadingrsquo attitude towards ending communism meant that he leant much credence to CIA findings
when it supported his anti-Soviet Union view His intelligence budget increase of thirteen percent in
1981 perhaps ensured Americarsquos defence analyst community to follow Reaganrsquos own hard-line
view of the Soviet Union lest they politically weaken the hand that had increased their funding 44
41 Schweizer ldquoVictoryrdquo p242 Reagan ldquo An American Liferdquo p26843 Firth amp Noren ldquoSoviet Defence Spendingrdquo p8744 Schweizer ldquoVictoryrdquo p62
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Nick Blackbourn 15
Firth and Noren dispute this accusation contending that Soviet defence spending estimations were
ldquohellipnever cooked for political purposesrdquo45
However Firth and Noren were themselves part of the
CIA team that created such data and as such are unlikely to slight their own professional integrity
As Freedman recognises it is important to consider that Estimators do not work in ivory towers
but in a community with its own political structure They find themselves amongst colleagues who
share a particular adversary image and come perhaps subconsciously to adopt this image as their
own46
Intelligence integrity aside Reagan selectively utilised the information provided by his
military advisors Facts and figures presented to him particularly by the CIA were an important
tool in policy justification Schweizer argues that ldquo[Casey] was a key figure in the emerging United
States foreign policyhelliphis effect on policy is hard to underestimaterdquo47 However when CIA
information did not lend credence to Reaganrsquos own worldview it was disregarded The influence of
the military over Reagan is questionable its importance in the justification of policy rather than its
determination is not The stature if not the influence of the military in American politics grew
during the 1980rsquos
There could be no greater contrast to this trend of the increasing importance of the military
in politics than Gorbachevrsquos Premiership in the Soviet Union from 1985 Gorbachev was the first
Premier to have achieved his position without association with the military sector in his political
career For the first time in the history of the Soviet Union no serving military official sat in the
Politburo The reason for historian Galeotti was that ldquo[Gorbachev]helliplacked patience with his
generals and soon realized [sic] that he would have to rely on outmanoeuvring rather than
45 Firth amp Noren ldquoSoviet Defence Spendingrdquo p746 Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1977) p18547 Schweizer ldquoVictoryrdquo p14
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Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
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Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
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Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 445
Nick Blackbourn 3
This section will reveal the actual importance and relevance of Soviet defence estimates within the
two Cold War rivals
This thesis will conclude that the premise of calculating a monetary figure for Soviet
defence spending was flawed At best such a figure was a general and very vague guide to the
trend of Soviet defence spending for American decision makers In reality the lack of a market
system to set prices meant valuations of defence procurement were essentially meaningless to the
Soviet government Many have scathingly remarked Gorbachev himself included that the
inefficient government and economically predatory Soviet Defence Council failed to produce useful
price valuations of defence spending and that this limited the scope of Politburo governance But
then why should they have created such figures Prices were meaningless to the government they
set them Of more concern and of greater practical use was to gauge the opportunity cost of
approving certain procurement programmes
In this context it is clear how defence spending in monetary terms was unimportant to the
Soviet leadership Gorbachev whose premiership began in March 1985 distrusted the military and
sought to reduce its influence in the political and economic sphere His Perestroika programme to
reform the Russian economy included reducing the heavy economic burden of defence the purpose
of which Kotkin has argued was ldquohellipreclaiming the ideals of the October revolutionrdquo4
Reagan on the other hand openly sought to increase the power of the American military
and was consequently increasingly open to its influence The estimates of Soviet defence spending
were used by Reagan in ldquohellipone of the biggest and most enduring political battles in Washington
the annual struggle over the size of the US defence budgethelliprdquo5 However it will be shown that such
calculations were beset with inaccuracies pure guesswork and were cherry picked by an
4 Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford University Press 2001) p1745 Firth amp Noren ldquoSoviet Defence Spendingrdquo pxii
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 4
administration determined to spend heavily on defence Reagan chose to use the aspects of CIA
estimations that demonstrated what he wanted to see communist militarism against which he could
lead a lsquocrusadersquo6
This study will conclude the work of the evaluations regarding CIA estimates of Soviet
Defence spending and assess the importance of these estimates on the Superpowersrsquo leadership In
America such estimations were crude and often hopelessly inaccurate throughout the Cold War
particularly in its closing stages These studies were unhelpful and misleading as the true costs of
maintaining Soviet military capabilities were revealed under lsquoglasnostrsquo In the Soviet Union such
statistics for the most part did not exist The impact of Soviet Defence estimations on the decision-
making process was limited The actions of Reagan and Gorbachev are better explained by their
own preconceptions as a staunch anti-Communist and a faithful Communist respectively
Chapter I ndash The Administrations of Mikhail Gorbachev and Ronald Reagan
To understand how defence-spending estimates were used the ambitions of the two Superpower
leaders for their relevant countries are an important area to consider The statistics themselves were
simply numbers on paper but it is how they were subsequently acted upon that makes them
significant In this section I will demonstrate what Reagan and Gorbachev saw as the purpose and
direction of their time in power particularly within the defence sector To achieve this I will
examine their worldview (ie how they viewed their perspective positions within the Cold War and
how this would change over time) their objectives for the military and the influence held by the
defence sector within each administration
6 Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan 2006)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 645
Nick Blackbourn 5
There is a clear contrast between the dynamics of leadership in the US and USSR between
1985 and 1989 Reagan led his country towards militarism and thus the sector may be presumed to
have held significant influence over the president but in the Soviet Union the opposite was true as
Gorbachev sought to demilitarise his country and reduce its influence within government7 By
examining the interactions between the military and the decision-making processes of the Reagan
and Gorbachev leaderships we can scrutinise the military-politico relationship in both the US and
the Soviet Union
The Worldviews of President Reagan and Premier Gorbachev
In the Soviet Union Reagan saw a powerful adversary and a sworn enemy of the United States of
America He was passionately anti-communist so much so that after his January 20th
1981
inauguration as President he actively sought to end deacutetente and take the offensive and bring about
the end of communism This was outlined in his National Security Decision Directive seventy-five8
ldquoReagan wanted to take the strategic initiative and not be forced into a reactive positionrdquo 9 These
views were fermented in Reaganrsquos Hollywood years during his time as a lsquoone man battalionrsquo facing
communists during their alleged lsquotakeover of Hollywoodrsquo in the 1950rsquos 10
Reagan had lsquolearnt what
communists were capable ofrsquo and henceforth despised them
ldquoNow I knew from firsthand experience how communists used lies deceit violence or
any other tactic that suited them to advance the cause of Soviet expansionism I knew
7 For details on Reaganrsquos Military build up see Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo(Ithaca Cornell University Press 1992)8 See Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)9 Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994) p13010 Reagan R ldquo An American Liferdquo (London 1991) p114
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 6
from the experience of hand-to-hand combat that America faced no other more insidious
or evil threat than that of communismrdquo11
Reagan was keen to instigate the downfall of the Soviet Union How much credit he can
individually command for the fall of communism is a topic beyond the scope of this study however
there is no doubt that the president actively sought to end the rule of the Communist Party in the
Eastern Bloc It was an individually driven ambition within his administration ldquoAt the time no one
in the administration (with the exception of Ronald Reagan) ever articulated a vision of a collapsing
Soviet edificerdquo12 This is not to suggest that Reagan was indeed a lsquoone man battalionrsquo in the fight
against communism but with his clear distain for the communist system any decision that would
weaken the USSR would be looked upon kindly by the president A classic case in point is
Reaganrsquos own brainchild the Strategic Defence Initiative and his rationale behind undertaking such
a project is ably outlined by Schweizer
ldquoWhile the presidentrsquos interest in SDI was largely based on his vision of a world no
longer facing nuclear peril the system was also pursued because of the strain it would
place on the Soviet economyrdquo13
The policies and spending initiatives undertaken during the Reagan presidency wherever possible
included aspects that could undermine the Soviet system Another example is Reaganrsquos relationship
with Saudi Arabia which ultimately lowered world oil prices and devastated Soviet foreign
currency earnings as a result These anti-Soviet initiatives undoubtedly represent the tone of
Reaganrsquos years in the White House The release of National Security Decision Directive seventy-
five on January 17th 1983 signed by Reagan clearly summed this subversive attitude towards the
Soviet Union which highlighted the key objectives of policy to be
11 Ibid p11512 Schweizer ldquoVictoryrdquo p28213 Ibid p135
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Nick Blackbourn 7
ldquohellipexternal resistance to Soviet imperialism internal pressure on the USSR to weaken
the sources of Soviet imperialismhellipthe US must convey clearly to Moscow that
unacceptable costs will incur costs that would outweigh any gainhelliprdquo14
Although Garthoff has questioned the true significance of NSDD seventy-five (ldquohellipthe ambiguity in
the presidentrsquos directive reflected Reaganrsquos ambivalencerdquo15
) there is no doubt that President
Reagan did believe that the Cold War could be won and the policy choices he made reflected this
attitude Five thousand miles away in Moscow Gorbachev viewed the future of Cold War tensions
in very different terms
Mikhail Gorbachev appointed General Secretary of the Communist Party on 11
th
March
1985 was a faithful communist and according to Kotkin a ldquohelliptrue believerhelliprdquo16
He still thought
that the Party ldquohellipwas a force capable of uniting societyhelliprdquo17 The Premier was also a realist
stemming from his days as a student at Moscow State Universityrsquos law faculty His pragmatic
approach meant he
ldquohellipwanted to see a world bound by sensible codes of conduct He was also a deal-
maker by nature and preferred to create a world in which he could haggle and persuade
rather than be locked in military confrontationrdquo 18
In order to achieve his goals for the political and economic restructuring under lsquoPerestroikarsquo he felt
the Soviet Union was obligated ldquohellipto change our relationship with the West particularly the US
and bring the costly and dangerous arms race to an endrdquo19 A Cold War de-escalation was necessary
14 National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquo ldquoFederation of American
Scientists Intelligence Resource Programrdquo lthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]see also Bailey N ldquoThe Strategy That Won the Cold Warrdquo p2915 Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo (Washington DCThe Brookings Institute 1994) p3316 Kotkin ldquo Armageddon Averted rdquo p3117 Gorbachev M ldquo Memoirsrdquo (London Bantam 1996) p16818 Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997) p6019 Gorbachev ldquo Memoirsrdquo p171
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Nick Blackbourn 8
to give the Soviet economy breathing space to lower its defence commitments and re-orientate itself
away from economic militarism
ldquoYes wersquove achieved strategic military parity with the Unites States And no-one
counted how much it cost ushellipLetrsquos make a thorough analysis of what a strong modern
army is what ensuring security means what the quality of security consists of And
when we know how much all this costs we can cut out the restrdquo20
To ideologically justify these cuts in military spending to the Politburo and Defence Council who
remained convinced of western hostility towards them Gorbachev attempted to lower the external
threat presented by the US
21
This was not an uncommon practice according to Meyer ldquohellipSoviet
military doctrine can be changed to fit economic assumptions In essence if you canrsquot afford the
requirements change the threatrdquo22
Much of Gorbachevrsquos rhetoric emanated from his professed distain for conflict and nuclear
proliferation ldquoThe arms race like nuclear war itself cannot be wonhellipSecurity is a political
problem and it can be solved only by political meansrdquo23 Gorbachev was too young to remember
the horrors of the Second World War that dominated the decisions made by the older members of
the Politburo He rejected the policy of continued military build-up to prevent a repeat of the
surprise Nazi invasion in June 1941 and instead highlighted the importance of farsighted diplomacy
to ensure Soviet security24 On April 26th 1986 the ldquoChernobyl disasterrdquo furthered his anti-military
disposition which was regarded by Gorbachev as ldquohellipa lsquofinal warningrsquohellipChernobyl has left a strong
20 Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park Pennsylvania State UniversityPress 2000) p19221 See Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins 1987)22 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco 1997) p21723 Gorbachev ldquoMemoirsrdquo p18524 Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson T ldquoSoldiers and the Soviet
State Civil-Military Relations from Brezhnev to Gorbachevrdquo (Princeton Princeton University Press 1990) p78
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1045
Nick Blackbourn 9
anti-nuclear streak in Gorbachevrsquos thinkingrdquo25 The Soviet Premier was forced into demilitarisation
by the economic straitjacket the Soviet Union found itself in but it was a measure he was more than
happy to pursue in his attempts to attain a lsquohuman facersquo for Socialism26
Aside from a shared distain for nuclear weapons we can see a marked contrast in how the
two leaders viewed the world and their position within it Reagan wanted a final victory whereas
Gorbachev hoped to back down and alleviate Cold War tension to provide breathing space for
structural reforms to take effect We now turn to how these views were manifested in the two
leadersrsquo military objectives and outcomes
The Military Objectives of President Reagan and Premier Gorbachev
Reagan wanted to escalate and lsquowinrsquo the Cold War and thus proceeded to practise confrontation in
foreign policy backed by increased arms spending Reagan stated as late as 1986 that
ldquohellipthe threat from Soviet forces conventional and strategic from the Soviet drive for
domination from the increase in espionage and state terror remains great This is reality
Closing our eyes will not make reality disappearrdquo27
In a tongue-in-cheek address on August 11 1984 he quipped ldquoIrsquom pleased to tell you today
thathellipbombing [of Russia] begins in five minutesrdquo28 Albeit a joke the address shows the hostile
mentality of the president To defeat the Soviet Union even without a lsquohotrsquo war military strength
was vital Building military strength was a signal of intent It provided an increased capability of
25 Reagan ldquoAn American Liferdquo p71026 Kotkin ldquo Armageddon Averted rdquo p5727 Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4 1986rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed130407]28 Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1145
Nick Blackbourn 10
military action and also presented an economic challenge to Soviet Union to maintain parity (and
later as doctrine altered sufficiency) Creating strong Armed Forces was obviously a military
decision but the impact on the USSR was perhaps most importantly economic and Reagan was
well aware William Clark Reaganrsquos National Security Advisor between 1982 and 1983 explains
that
ldquoRonald Reagan wanted a complementary relationship between the US military
builduphellipand economic security policies directed at MoscowhellipFrankly our intention
was to divert priority Soviet resources to meeting future US capabilities beyond their
grasp and to persuade Moscow that they would not prevail in a toe-to-toe technological
competitionrdquo29
These may well be the words of a man attempting to cement his own contribution to the downfall of
the Soviet Union but his summary of the intentions of the Reagan build-up are corroborated by
Soviet Marshal Ogarkov is his book lsquoAlways in Readiness to Defend the Fatherlandrsquo in which he
highlights his own concerns over the pace of American technology30
Aside from his desire for freedom to ldquohelliptranscend communismhelliprdquo Reaganrsquos goal was to
restore American national pride following the negative reaction to the Vietnam years and the
apparent successes of communism in the 1970rsquos such as the recognition of Soviet dominated
Eastern Europe after the Helsinki Accords on August 1st 1975 and the advancement of
Communism in Latin America throughout the decade 31 One way Reagan sought to achieve this
29 Schweizer ldquoVictoryrdquo p13230 Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982) see also Weickhardt G ldquoTheWorld According To Ogarkovrdquo in ldquo International Security 8rdquo (Spring 1984) pp182-531 Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 17 1981rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1245
Nick Blackbourn 11
goal was to shake-up the American military and restore its prestige in society in addition to
strengthening its physical power
ldquohellipthere were many problems facing our nation the tragic neglect of our military
establishment high unemployment and an ailing economy the continuing expansion of
communism abroadhellipBut to me none was more serious than the fact America had lost
faith in itselfrdquo32 ldquoI told the Joint Chiefs of Staff that I wanted to make our men and
women proud to wear their uniforms againrdquo33
For Reagan the military held an important position within American society and as such he actively
sought to improve the power and standing of the Armed Forces In his opinion a military revival
would spearhead a spiritual revival34
The strengthening of the defence sector was in many ways
independent of the confrontational foreign policy that was outlined in NSDD seventy-five in its
own right the president wanted America to be lsquoproudrsquo once again Thus the build-up of US armed
forces was a keystone of domestic policy as well as being a vital component of foreign policy
The same was not true in the Soviet Union Gorbachev was not as sympathetic to military
concerns as previous Soviet leaders his priorities clearly lay away from the defence sector and he
sought to remove this hitherto ubiquitous bias within the Soviet system Gorbachev referred to a
meeting where
ldquoDmitry Fedorovich [Soviet Defence Minister 1976 - 1984] remarked casually that
he was fully aware that lsquodefence and breadrsquo were the key issues I corrected this
statement to me lsquobread and defencersquo was the right order of prioritiesrdquo35
32 Reagan ldquoAn American Liferdquo p21933 Ibid p23534 Ibid p21935 Gorbachev ldquoMemoirsrdquo p136
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Nick Blackbourn 12
Though we can question the reliability of his memoirs which may well be presented in a
self-promoting manner Gorbachevrsquos actions in this period lend credence to his claim For example
the easy removal of military figures from power ldquohellipclearly show[s] that Soviet political leaders
[did] not instinctively agree with the priorities of the military establishmenthelliprdquo36
The Soviet
Premier was committed to reducing the grip of militarism over Soviet society and this was achieved
by delivering ldquohellipa series of deliberate symbolic slights of high commandrdquo37
Behind his desire to thaw the Cold War lay Gorbachevrsquos goal to demilitarise the Soviet Union
both economically and politically As Anatoly Chernayaev personal advisor on foreign affairs to
Gorbachev recalls
ldquo[It was] an imperative for Gorbachev that we had to put an end to the Cold War that
we had to reduce our military budget significantly that we had to limit our military
industrial complex in some way For him it was absolutely clear that would have to
negotiate with President Reaganhelliprdquo38
The rationale for bias in Chernayaevrsquos testimony is limited His statement reveals the emphasis of
policy rather than any of his own potential prejudice for or against Gorbachev as a person or as a
leader Furthermore the removal of the uncooperative military leader Soviet Defence Minister
Sokolov in 1987 demonstrates this trend Thus Gorbachev in his attempts to reform the Soviet
Union sought to instigate a decline in the power of the military first politically and then physically
in order to reduce the economic burden that such a large force placed on the Soviet economy
Evidently there was a clear contrast in geopolitical aspirations between the two
Superpowers Reagan harboured ambitions to increase Americarsquos military power in order that she
36 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p21737 Colton amp Gustafson ldquoSoldiers and the Staterdquo p3238 Schweizer ldquoVictoryrdquo p238
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1445
Nick Blackbourn 13
may take the initiative and end the Cold War Schweizer a contemporary political journalist in
Washington believes ldquoReagan had deeper ideological commitments and a strategic agenda that
went beyond real-politikhellipReagan not only spoke of the lsquoevil empirersquo and Marxism-Leninismrsquos
ending up on the lsquoash heap of historyrsquo he believed itrdquo39
The situation was quite the opposite in the
Soviet Union Gorbachev a pragmatist wanted hostilities to subside in order to allow the economic
and indeed political restructuring to permit the reduction of the military burden in the Soviet
Union His unilateral demobilisation of five hundred thousand Soviet troops announced at the UN
in 1988 shows his commitment to this direction in policy
The contrasting trends of militarization in America and demilitarization in the Soviet Union
would suggest a similar contrast in the influence of the military within each regime and this will
now be considered
Influence of the Defence Sectors in the USA and the USSR under Reagan and Gorbachev
The question of the influence of the military sector in Reaganrsquos and Gorbachevrsquos administrations
was an important one Reagan was much more open to the information presented to him from
within the military sphere than was Gorbachev Immediately following his inauguration Reagan had
authorised a thirty-three billion dollar increase in defence spending without even consulting the
military for their needs40 With this level of fiscal commitment to the American defence sector
Reagan was likely to utilise the information provided by his intelligence services Reaganrsquos
appointment of Bill Casey to head the CIA offers an insight as to the role of the Pentagon in the
Reagan administration
39 Ibid p17140 Garthoff ldquoThe Great Transitionrdquo p33
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 14
Prior to his acceptance of position Casey demanded an office in the White House and his
inclusion in policy discussion Reagan accepted
ldquoCasey demanded an office in the White House complex He wanted easy access to
White House personal and the president not exile in Langley In politics as in
commercial real estate location is everything He could drop by the Oval Office and
informally influence policyrdquo41
The CIA chief now had direct access to the president He presented raw data on the Soviet
economy and defence-spending patterns were regularly passed onto the president Reagan was
guided towards lsquoshockingrsquo statistics on Soviet military spending which required urgent US
attention These reports Reagan said led him to muse that ldquohellipsomeone in the Kremlin had to
realize [sic] that in arming themselves to the teeth they were aggravating the desperate economic
problems in the Soviet Unionhelliprdquo42
However one must question whether these reports actually lead
to this conclusion or whether they simply corroborated the presidentrsquos own view Did the CIA
provide information that helped determine Americarsquos spending policies under Reagan or did it
simply justify policies Reagan had already chosen prior to Office It appears that rather than
assisting the formulation of policy directly information from the intelligence community was used
because it ldquohellipproved useful in supporting the US defence builduphelliprdquo43
Ronald Reaganrsquos
lsquocrusadingrsquo attitude towards ending communism meant that he leant much credence to CIA findings
when it supported his anti-Soviet Union view His intelligence budget increase of thirteen percent in
1981 perhaps ensured Americarsquos defence analyst community to follow Reaganrsquos own hard-line
view of the Soviet Union lest they politically weaken the hand that had increased their funding 44
41 Schweizer ldquoVictoryrdquo p242 Reagan ldquo An American Liferdquo p26843 Firth amp Noren ldquoSoviet Defence Spendingrdquo p8744 Schweizer ldquoVictoryrdquo p62
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Nick Blackbourn 15
Firth and Noren dispute this accusation contending that Soviet defence spending estimations were
ldquohellipnever cooked for political purposesrdquo45
However Firth and Noren were themselves part of the
CIA team that created such data and as such are unlikely to slight their own professional integrity
As Freedman recognises it is important to consider that Estimators do not work in ivory towers
but in a community with its own political structure They find themselves amongst colleagues who
share a particular adversary image and come perhaps subconsciously to adopt this image as their
own46
Intelligence integrity aside Reagan selectively utilised the information provided by his
military advisors Facts and figures presented to him particularly by the CIA were an important
tool in policy justification Schweizer argues that ldquo[Casey] was a key figure in the emerging United
States foreign policyhelliphis effect on policy is hard to underestimaterdquo47 However when CIA
information did not lend credence to Reaganrsquos own worldview it was disregarded The influence of
the military over Reagan is questionable its importance in the justification of policy rather than its
determination is not The stature if not the influence of the military in American politics grew
during the 1980rsquos
There could be no greater contrast to this trend of the increasing importance of the military
in politics than Gorbachevrsquos Premiership in the Soviet Union from 1985 Gorbachev was the first
Premier to have achieved his position without association with the military sector in his political
career For the first time in the history of the Soviet Union no serving military official sat in the
Politburo The reason for historian Galeotti was that ldquo[Gorbachev]helliplacked patience with his
generals and soon realized [sic] that he would have to rely on outmanoeuvring rather than
45 Firth amp Noren ldquoSoviet Defence Spendingrdquo p746 Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1977) p18547 Schweizer ldquoVictoryrdquo p14
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Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
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Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 545
Nick Blackbourn 4
administration determined to spend heavily on defence Reagan chose to use the aspects of CIA
estimations that demonstrated what he wanted to see communist militarism against which he could
lead a lsquocrusadersquo6
This study will conclude the work of the evaluations regarding CIA estimates of Soviet
Defence spending and assess the importance of these estimates on the Superpowersrsquo leadership In
America such estimations were crude and often hopelessly inaccurate throughout the Cold War
particularly in its closing stages These studies were unhelpful and misleading as the true costs of
maintaining Soviet military capabilities were revealed under lsquoglasnostrsquo In the Soviet Union such
statistics for the most part did not exist The impact of Soviet Defence estimations on the decision-
making process was limited The actions of Reagan and Gorbachev are better explained by their
own preconceptions as a staunch anti-Communist and a faithful Communist respectively
Chapter I ndash The Administrations of Mikhail Gorbachev and Ronald Reagan
To understand how defence-spending estimates were used the ambitions of the two Superpower
leaders for their relevant countries are an important area to consider The statistics themselves were
simply numbers on paper but it is how they were subsequently acted upon that makes them
significant In this section I will demonstrate what Reagan and Gorbachev saw as the purpose and
direction of their time in power particularly within the defence sector To achieve this I will
examine their worldview (ie how they viewed their perspective positions within the Cold War and
how this would change over time) their objectives for the military and the influence held by the
defence sector within each administration
6 Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan 2006)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 645
Nick Blackbourn 5
There is a clear contrast between the dynamics of leadership in the US and USSR between
1985 and 1989 Reagan led his country towards militarism and thus the sector may be presumed to
have held significant influence over the president but in the Soviet Union the opposite was true as
Gorbachev sought to demilitarise his country and reduce its influence within government7 By
examining the interactions between the military and the decision-making processes of the Reagan
and Gorbachev leaderships we can scrutinise the military-politico relationship in both the US and
the Soviet Union
The Worldviews of President Reagan and Premier Gorbachev
In the Soviet Union Reagan saw a powerful adversary and a sworn enemy of the United States of
America He was passionately anti-communist so much so that after his January 20th
1981
inauguration as President he actively sought to end deacutetente and take the offensive and bring about
the end of communism This was outlined in his National Security Decision Directive seventy-five8
ldquoReagan wanted to take the strategic initiative and not be forced into a reactive positionrdquo 9 These
views were fermented in Reaganrsquos Hollywood years during his time as a lsquoone man battalionrsquo facing
communists during their alleged lsquotakeover of Hollywoodrsquo in the 1950rsquos 10
Reagan had lsquolearnt what
communists were capable ofrsquo and henceforth despised them
ldquoNow I knew from firsthand experience how communists used lies deceit violence or
any other tactic that suited them to advance the cause of Soviet expansionism I knew
7 For details on Reaganrsquos Military build up see Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo(Ithaca Cornell University Press 1992)8 See Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)9 Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994) p13010 Reagan R ldquo An American Liferdquo (London 1991) p114
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 745
Nick Blackbourn 6
from the experience of hand-to-hand combat that America faced no other more insidious
or evil threat than that of communismrdquo11
Reagan was keen to instigate the downfall of the Soviet Union How much credit he can
individually command for the fall of communism is a topic beyond the scope of this study however
there is no doubt that the president actively sought to end the rule of the Communist Party in the
Eastern Bloc It was an individually driven ambition within his administration ldquoAt the time no one
in the administration (with the exception of Ronald Reagan) ever articulated a vision of a collapsing
Soviet edificerdquo12 This is not to suggest that Reagan was indeed a lsquoone man battalionrsquo in the fight
against communism but with his clear distain for the communist system any decision that would
weaken the USSR would be looked upon kindly by the president A classic case in point is
Reaganrsquos own brainchild the Strategic Defence Initiative and his rationale behind undertaking such
a project is ably outlined by Schweizer
ldquoWhile the presidentrsquos interest in SDI was largely based on his vision of a world no
longer facing nuclear peril the system was also pursued because of the strain it would
place on the Soviet economyrdquo13
The policies and spending initiatives undertaken during the Reagan presidency wherever possible
included aspects that could undermine the Soviet system Another example is Reaganrsquos relationship
with Saudi Arabia which ultimately lowered world oil prices and devastated Soviet foreign
currency earnings as a result These anti-Soviet initiatives undoubtedly represent the tone of
Reaganrsquos years in the White House The release of National Security Decision Directive seventy-
five on January 17th 1983 signed by Reagan clearly summed this subversive attitude towards the
Soviet Union which highlighted the key objectives of policy to be
11 Ibid p11512 Schweizer ldquoVictoryrdquo p28213 Ibid p135
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Nick Blackbourn 7
ldquohellipexternal resistance to Soviet imperialism internal pressure on the USSR to weaken
the sources of Soviet imperialismhellipthe US must convey clearly to Moscow that
unacceptable costs will incur costs that would outweigh any gainhelliprdquo14
Although Garthoff has questioned the true significance of NSDD seventy-five (ldquohellipthe ambiguity in
the presidentrsquos directive reflected Reaganrsquos ambivalencerdquo15
) there is no doubt that President
Reagan did believe that the Cold War could be won and the policy choices he made reflected this
attitude Five thousand miles away in Moscow Gorbachev viewed the future of Cold War tensions
in very different terms
Mikhail Gorbachev appointed General Secretary of the Communist Party on 11
th
March
1985 was a faithful communist and according to Kotkin a ldquohelliptrue believerhelliprdquo16
He still thought
that the Party ldquohellipwas a force capable of uniting societyhelliprdquo17 The Premier was also a realist
stemming from his days as a student at Moscow State Universityrsquos law faculty His pragmatic
approach meant he
ldquohellipwanted to see a world bound by sensible codes of conduct He was also a deal-
maker by nature and preferred to create a world in which he could haggle and persuade
rather than be locked in military confrontationrdquo 18
In order to achieve his goals for the political and economic restructuring under lsquoPerestroikarsquo he felt
the Soviet Union was obligated ldquohellipto change our relationship with the West particularly the US
and bring the costly and dangerous arms race to an endrdquo19 A Cold War de-escalation was necessary
14 National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquo ldquoFederation of American
Scientists Intelligence Resource Programrdquo lthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]see also Bailey N ldquoThe Strategy That Won the Cold Warrdquo p2915 Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo (Washington DCThe Brookings Institute 1994) p3316 Kotkin ldquo Armageddon Averted rdquo p3117 Gorbachev M ldquo Memoirsrdquo (London Bantam 1996) p16818 Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997) p6019 Gorbachev ldquo Memoirsrdquo p171
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Nick Blackbourn 8
to give the Soviet economy breathing space to lower its defence commitments and re-orientate itself
away from economic militarism
ldquoYes wersquove achieved strategic military parity with the Unites States And no-one
counted how much it cost ushellipLetrsquos make a thorough analysis of what a strong modern
army is what ensuring security means what the quality of security consists of And
when we know how much all this costs we can cut out the restrdquo20
To ideologically justify these cuts in military spending to the Politburo and Defence Council who
remained convinced of western hostility towards them Gorbachev attempted to lower the external
threat presented by the US
21
This was not an uncommon practice according to Meyer ldquohellipSoviet
military doctrine can be changed to fit economic assumptions In essence if you canrsquot afford the
requirements change the threatrdquo22
Much of Gorbachevrsquos rhetoric emanated from his professed distain for conflict and nuclear
proliferation ldquoThe arms race like nuclear war itself cannot be wonhellipSecurity is a political
problem and it can be solved only by political meansrdquo23 Gorbachev was too young to remember
the horrors of the Second World War that dominated the decisions made by the older members of
the Politburo He rejected the policy of continued military build-up to prevent a repeat of the
surprise Nazi invasion in June 1941 and instead highlighted the importance of farsighted diplomacy
to ensure Soviet security24 On April 26th 1986 the ldquoChernobyl disasterrdquo furthered his anti-military
disposition which was regarded by Gorbachev as ldquohellipa lsquofinal warningrsquohellipChernobyl has left a strong
20 Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park Pennsylvania State UniversityPress 2000) p19221 See Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins 1987)22 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco 1997) p21723 Gorbachev ldquoMemoirsrdquo p18524 Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson T ldquoSoldiers and the Soviet
State Civil-Military Relations from Brezhnev to Gorbachevrdquo (Princeton Princeton University Press 1990) p78
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Nick Blackbourn 9
anti-nuclear streak in Gorbachevrsquos thinkingrdquo25 The Soviet Premier was forced into demilitarisation
by the economic straitjacket the Soviet Union found itself in but it was a measure he was more than
happy to pursue in his attempts to attain a lsquohuman facersquo for Socialism26
Aside from a shared distain for nuclear weapons we can see a marked contrast in how the
two leaders viewed the world and their position within it Reagan wanted a final victory whereas
Gorbachev hoped to back down and alleviate Cold War tension to provide breathing space for
structural reforms to take effect We now turn to how these views were manifested in the two
leadersrsquo military objectives and outcomes
The Military Objectives of President Reagan and Premier Gorbachev
Reagan wanted to escalate and lsquowinrsquo the Cold War and thus proceeded to practise confrontation in
foreign policy backed by increased arms spending Reagan stated as late as 1986 that
ldquohellipthe threat from Soviet forces conventional and strategic from the Soviet drive for
domination from the increase in espionage and state terror remains great This is reality
Closing our eyes will not make reality disappearrdquo27
In a tongue-in-cheek address on August 11 1984 he quipped ldquoIrsquom pleased to tell you today
thathellipbombing [of Russia] begins in five minutesrdquo28 Albeit a joke the address shows the hostile
mentality of the president To defeat the Soviet Union even without a lsquohotrsquo war military strength
was vital Building military strength was a signal of intent It provided an increased capability of
25 Reagan ldquoAn American Liferdquo p71026 Kotkin ldquo Armageddon Averted rdquo p5727 Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4 1986rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed130407]28 Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
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Nick Blackbourn 10
military action and also presented an economic challenge to Soviet Union to maintain parity (and
later as doctrine altered sufficiency) Creating strong Armed Forces was obviously a military
decision but the impact on the USSR was perhaps most importantly economic and Reagan was
well aware William Clark Reaganrsquos National Security Advisor between 1982 and 1983 explains
that
ldquoRonald Reagan wanted a complementary relationship between the US military
builduphellipand economic security policies directed at MoscowhellipFrankly our intention
was to divert priority Soviet resources to meeting future US capabilities beyond their
grasp and to persuade Moscow that they would not prevail in a toe-to-toe technological
competitionrdquo29
These may well be the words of a man attempting to cement his own contribution to the downfall of
the Soviet Union but his summary of the intentions of the Reagan build-up are corroborated by
Soviet Marshal Ogarkov is his book lsquoAlways in Readiness to Defend the Fatherlandrsquo in which he
highlights his own concerns over the pace of American technology30
Aside from his desire for freedom to ldquohelliptranscend communismhelliprdquo Reaganrsquos goal was to
restore American national pride following the negative reaction to the Vietnam years and the
apparent successes of communism in the 1970rsquos such as the recognition of Soviet dominated
Eastern Europe after the Helsinki Accords on August 1st 1975 and the advancement of
Communism in Latin America throughout the decade 31 One way Reagan sought to achieve this
29 Schweizer ldquoVictoryrdquo p13230 Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982) see also Weickhardt G ldquoTheWorld According To Ogarkovrdquo in ldquo International Security 8rdquo (Spring 1984) pp182-531 Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 17 1981rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed130407]
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Nick Blackbourn 11
goal was to shake-up the American military and restore its prestige in society in addition to
strengthening its physical power
ldquohellipthere were many problems facing our nation the tragic neglect of our military
establishment high unemployment and an ailing economy the continuing expansion of
communism abroadhellipBut to me none was more serious than the fact America had lost
faith in itselfrdquo32 ldquoI told the Joint Chiefs of Staff that I wanted to make our men and
women proud to wear their uniforms againrdquo33
For Reagan the military held an important position within American society and as such he actively
sought to improve the power and standing of the Armed Forces In his opinion a military revival
would spearhead a spiritual revival34
The strengthening of the defence sector was in many ways
independent of the confrontational foreign policy that was outlined in NSDD seventy-five in its
own right the president wanted America to be lsquoproudrsquo once again Thus the build-up of US armed
forces was a keystone of domestic policy as well as being a vital component of foreign policy
The same was not true in the Soviet Union Gorbachev was not as sympathetic to military
concerns as previous Soviet leaders his priorities clearly lay away from the defence sector and he
sought to remove this hitherto ubiquitous bias within the Soviet system Gorbachev referred to a
meeting where
ldquoDmitry Fedorovich [Soviet Defence Minister 1976 - 1984] remarked casually that
he was fully aware that lsquodefence and breadrsquo were the key issues I corrected this
statement to me lsquobread and defencersquo was the right order of prioritiesrdquo35
32 Reagan ldquoAn American Liferdquo p21933 Ibid p23534 Ibid p21935 Gorbachev ldquoMemoirsrdquo p136
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Nick Blackbourn 12
Though we can question the reliability of his memoirs which may well be presented in a
self-promoting manner Gorbachevrsquos actions in this period lend credence to his claim For example
the easy removal of military figures from power ldquohellipclearly show[s] that Soviet political leaders
[did] not instinctively agree with the priorities of the military establishmenthelliprdquo36
The Soviet
Premier was committed to reducing the grip of militarism over Soviet society and this was achieved
by delivering ldquohellipa series of deliberate symbolic slights of high commandrdquo37
Behind his desire to thaw the Cold War lay Gorbachevrsquos goal to demilitarise the Soviet Union
both economically and politically As Anatoly Chernayaev personal advisor on foreign affairs to
Gorbachev recalls
ldquo[It was] an imperative for Gorbachev that we had to put an end to the Cold War that
we had to reduce our military budget significantly that we had to limit our military
industrial complex in some way For him it was absolutely clear that would have to
negotiate with President Reaganhelliprdquo38
The rationale for bias in Chernayaevrsquos testimony is limited His statement reveals the emphasis of
policy rather than any of his own potential prejudice for or against Gorbachev as a person or as a
leader Furthermore the removal of the uncooperative military leader Soviet Defence Minister
Sokolov in 1987 demonstrates this trend Thus Gorbachev in his attempts to reform the Soviet
Union sought to instigate a decline in the power of the military first politically and then physically
in order to reduce the economic burden that such a large force placed on the Soviet economy
Evidently there was a clear contrast in geopolitical aspirations between the two
Superpowers Reagan harboured ambitions to increase Americarsquos military power in order that she
36 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p21737 Colton amp Gustafson ldquoSoldiers and the Staterdquo p3238 Schweizer ldquoVictoryrdquo p238
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Nick Blackbourn 13
may take the initiative and end the Cold War Schweizer a contemporary political journalist in
Washington believes ldquoReagan had deeper ideological commitments and a strategic agenda that
went beyond real-politikhellipReagan not only spoke of the lsquoevil empirersquo and Marxism-Leninismrsquos
ending up on the lsquoash heap of historyrsquo he believed itrdquo39
The situation was quite the opposite in the
Soviet Union Gorbachev a pragmatist wanted hostilities to subside in order to allow the economic
and indeed political restructuring to permit the reduction of the military burden in the Soviet
Union His unilateral demobilisation of five hundred thousand Soviet troops announced at the UN
in 1988 shows his commitment to this direction in policy
The contrasting trends of militarization in America and demilitarization in the Soviet Union
would suggest a similar contrast in the influence of the military within each regime and this will
now be considered
Influence of the Defence Sectors in the USA and the USSR under Reagan and Gorbachev
The question of the influence of the military sector in Reaganrsquos and Gorbachevrsquos administrations
was an important one Reagan was much more open to the information presented to him from
within the military sphere than was Gorbachev Immediately following his inauguration Reagan had
authorised a thirty-three billion dollar increase in defence spending without even consulting the
military for their needs40 With this level of fiscal commitment to the American defence sector
Reagan was likely to utilise the information provided by his intelligence services Reaganrsquos
appointment of Bill Casey to head the CIA offers an insight as to the role of the Pentagon in the
Reagan administration
39 Ibid p17140 Garthoff ldquoThe Great Transitionrdquo p33
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Nick Blackbourn 14
Prior to his acceptance of position Casey demanded an office in the White House and his
inclusion in policy discussion Reagan accepted
ldquoCasey demanded an office in the White House complex He wanted easy access to
White House personal and the president not exile in Langley In politics as in
commercial real estate location is everything He could drop by the Oval Office and
informally influence policyrdquo41
The CIA chief now had direct access to the president He presented raw data on the Soviet
economy and defence-spending patterns were regularly passed onto the president Reagan was
guided towards lsquoshockingrsquo statistics on Soviet military spending which required urgent US
attention These reports Reagan said led him to muse that ldquohellipsomeone in the Kremlin had to
realize [sic] that in arming themselves to the teeth they were aggravating the desperate economic
problems in the Soviet Unionhelliprdquo42
However one must question whether these reports actually lead
to this conclusion or whether they simply corroborated the presidentrsquos own view Did the CIA
provide information that helped determine Americarsquos spending policies under Reagan or did it
simply justify policies Reagan had already chosen prior to Office It appears that rather than
assisting the formulation of policy directly information from the intelligence community was used
because it ldquohellipproved useful in supporting the US defence builduphelliprdquo43
Ronald Reaganrsquos
lsquocrusadingrsquo attitude towards ending communism meant that he leant much credence to CIA findings
when it supported his anti-Soviet Union view His intelligence budget increase of thirteen percent in
1981 perhaps ensured Americarsquos defence analyst community to follow Reaganrsquos own hard-line
view of the Soviet Union lest they politically weaken the hand that had increased their funding 44
41 Schweizer ldquoVictoryrdquo p242 Reagan ldquo An American Liferdquo p26843 Firth amp Noren ldquoSoviet Defence Spendingrdquo p8744 Schweizer ldquoVictoryrdquo p62
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Nick Blackbourn 15
Firth and Noren dispute this accusation contending that Soviet defence spending estimations were
ldquohellipnever cooked for political purposesrdquo45
However Firth and Noren were themselves part of the
CIA team that created such data and as such are unlikely to slight their own professional integrity
As Freedman recognises it is important to consider that Estimators do not work in ivory towers
but in a community with its own political structure They find themselves amongst colleagues who
share a particular adversary image and come perhaps subconsciously to adopt this image as their
own46
Intelligence integrity aside Reagan selectively utilised the information provided by his
military advisors Facts and figures presented to him particularly by the CIA were an important
tool in policy justification Schweizer argues that ldquo[Casey] was a key figure in the emerging United
States foreign policyhelliphis effect on policy is hard to underestimaterdquo47 However when CIA
information did not lend credence to Reaganrsquos own worldview it was disregarded The influence of
the military over Reagan is questionable its importance in the justification of policy rather than its
determination is not The stature if not the influence of the military in American politics grew
during the 1980rsquos
There could be no greater contrast to this trend of the increasing importance of the military
in politics than Gorbachevrsquos Premiership in the Soviet Union from 1985 Gorbachev was the first
Premier to have achieved his position without association with the military sector in his political
career For the first time in the history of the Soviet Union no serving military official sat in the
Politburo The reason for historian Galeotti was that ldquo[Gorbachev]helliplacked patience with his
generals and soon realized [sic] that he would have to rely on outmanoeuvring rather than
45 Firth amp Noren ldquoSoviet Defence Spendingrdquo p746 Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1977) p18547 Schweizer ldquoVictoryrdquo p14
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Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
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Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 645
Nick Blackbourn 5
There is a clear contrast between the dynamics of leadership in the US and USSR between
1985 and 1989 Reagan led his country towards militarism and thus the sector may be presumed to
have held significant influence over the president but in the Soviet Union the opposite was true as
Gorbachev sought to demilitarise his country and reduce its influence within government7 By
examining the interactions between the military and the decision-making processes of the Reagan
and Gorbachev leaderships we can scrutinise the military-politico relationship in both the US and
the Soviet Union
The Worldviews of President Reagan and Premier Gorbachev
In the Soviet Union Reagan saw a powerful adversary and a sworn enemy of the United States of
America He was passionately anti-communist so much so that after his January 20th
1981
inauguration as President he actively sought to end deacutetente and take the offensive and bring about
the end of communism This was outlined in his National Security Decision Directive seventy-five8
ldquoReagan wanted to take the strategic initiative and not be forced into a reactive positionrdquo 9 These
views were fermented in Reaganrsquos Hollywood years during his time as a lsquoone man battalionrsquo facing
communists during their alleged lsquotakeover of Hollywoodrsquo in the 1950rsquos 10
Reagan had lsquolearnt what
communists were capable ofrsquo and henceforth despised them
ldquoNow I knew from firsthand experience how communists used lies deceit violence or
any other tactic that suited them to advance the cause of Soviet expansionism I knew
7 For details on Reaganrsquos Military build up see Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo(Ithaca Cornell University Press 1992)8 See Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)9 Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994) p13010 Reagan R ldquo An American Liferdquo (London 1991) p114
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 745
Nick Blackbourn 6
from the experience of hand-to-hand combat that America faced no other more insidious
or evil threat than that of communismrdquo11
Reagan was keen to instigate the downfall of the Soviet Union How much credit he can
individually command for the fall of communism is a topic beyond the scope of this study however
there is no doubt that the president actively sought to end the rule of the Communist Party in the
Eastern Bloc It was an individually driven ambition within his administration ldquoAt the time no one
in the administration (with the exception of Ronald Reagan) ever articulated a vision of a collapsing
Soviet edificerdquo12 This is not to suggest that Reagan was indeed a lsquoone man battalionrsquo in the fight
against communism but with his clear distain for the communist system any decision that would
weaken the USSR would be looked upon kindly by the president A classic case in point is
Reaganrsquos own brainchild the Strategic Defence Initiative and his rationale behind undertaking such
a project is ably outlined by Schweizer
ldquoWhile the presidentrsquos interest in SDI was largely based on his vision of a world no
longer facing nuclear peril the system was also pursued because of the strain it would
place on the Soviet economyrdquo13
The policies and spending initiatives undertaken during the Reagan presidency wherever possible
included aspects that could undermine the Soviet system Another example is Reaganrsquos relationship
with Saudi Arabia which ultimately lowered world oil prices and devastated Soviet foreign
currency earnings as a result These anti-Soviet initiatives undoubtedly represent the tone of
Reaganrsquos years in the White House The release of National Security Decision Directive seventy-
five on January 17th 1983 signed by Reagan clearly summed this subversive attitude towards the
Soviet Union which highlighted the key objectives of policy to be
11 Ibid p11512 Schweizer ldquoVictoryrdquo p28213 Ibid p135
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Nick Blackbourn 7
ldquohellipexternal resistance to Soviet imperialism internal pressure on the USSR to weaken
the sources of Soviet imperialismhellipthe US must convey clearly to Moscow that
unacceptable costs will incur costs that would outweigh any gainhelliprdquo14
Although Garthoff has questioned the true significance of NSDD seventy-five (ldquohellipthe ambiguity in
the presidentrsquos directive reflected Reaganrsquos ambivalencerdquo15
) there is no doubt that President
Reagan did believe that the Cold War could be won and the policy choices he made reflected this
attitude Five thousand miles away in Moscow Gorbachev viewed the future of Cold War tensions
in very different terms
Mikhail Gorbachev appointed General Secretary of the Communist Party on 11
th
March
1985 was a faithful communist and according to Kotkin a ldquohelliptrue believerhelliprdquo16
He still thought
that the Party ldquohellipwas a force capable of uniting societyhelliprdquo17 The Premier was also a realist
stemming from his days as a student at Moscow State Universityrsquos law faculty His pragmatic
approach meant he
ldquohellipwanted to see a world bound by sensible codes of conduct He was also a deal-
maker by nature and preferred to create a world in which he could haggle and persuade
rather than be locked in military confrontationrdquo 18
In order to achieve his goals for the political and economic restructuring under lsquoPerestroikarsquo he felt
the Soviet Union was obligated ldquohellipto change our relationship with the West particularly the US
and bring the costly and dangerous arms race to an endrdquo19 A Cold War de-escalation was necessary
14 National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquo ldquoFederation of American
Scientists Intelligence Resource Programrdquo lthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]see also Bailey N ldquoThe Strategy That Won the Cold Warrdquo p2915 Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo (Washington DCThe Brookings Institute 1994) p3316 Kotkin ldquo Armageddon Averted rdquo p3117 Gorbachev M ldquo Memoirsrdquo (London Bantam 1996) p16818 Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997) p6019 Gorbachev ldquo Memoirsrdquo p171
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 945
Nick Blackbourn 8
to give the Soviet economy breathing space to lower its defence commitments and re-orientate itself
away from economic militarism
ldquoYes wersquove achieved strategic military parity with the Unites States And no-one
counted how much it cost ushellipLetrsquos make a thorough analysis of what a strong modern
army is what ensuring security means what the quality of security consists of And
when we know how much all this costs we can cut out the restrdquo20
To ideologically justify these cuts in military spending to the Politburo and Defence Council who
remained convinced of western hostility towards them Gorbachev attempted to lower the external
threat presented by the US
21
This was not an uncommon practice according to Meyer ldquohellipSoviet
military doctrine can be changed to fit economic assumptions In essence if you canrsquot afford the
requirements change the threatrdquo22
Much of Gorbachevrsquos rhetoric emanated from his professed distain for conflict and nuclear
proliferation ldquoThe arms race like nuclear war itself cannot be wonhellipSecurity is a political
problem and it can be solved only by political meansrdquo23 Gorbachev was too young to remember
the horrors of the Second World War that dominated the decisions made by the older members of
the Politburo He rejected the policy of continued military build-up to prevent a repeat of the
surprise Nazi invasion in June 1941 and instead highlighted the importance of farsighted diplomacy
to ensure Soviet security24 On April 26th 1986 the ldquoChernobyl disasterrdquo furthered his anti-military
disposition which was regarded by Gorbachev as ldquohellipa lsquofinal warningrsquohellipChernobyl has left a strong
20 Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park Pennsylvania State UniversityPress 2000) p19221 See Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins 1987)22 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco 1997) p21723 Gorbachev ldquoMemoirsrdquo p18524 Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson T ldquoSoldiers and the Soviet
State Civil-Military Relations from Brezhnev to Gorbachevrdquo (Princeton Princeton University Press 1990) p78
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1045
Nick Blackbourn 9
anti-nuclear streak in Gorbachevrsquos thinkingrdquo25 The Soviet Premier was forced into demilitarisation
by the economic straitjacket the Soviet Union found itself in but it was a measure he was more than
happy to pursue in his attempts to attain a lsquohuman facersquo for Socialism26
Aside from a shared distain for nuclear weapons we can see a marked contrast in how the
two leaders viewed the world and their position within it Reagan wanted a final victory whereas
Gorbachev hoped to back down and alleviate Cold War tension to provide breathing space for
structural reforms to take effect We now turn to how these views were manifested in the two
leadersrsquo military objectives and outcomes
The Military Objectives of President Reagan and Premier Gorbachev
Reagan wanted to escalate and lsquowinrsquo the Cold War and thus proceeded to practise confrontation in
foreign policy backed by increased arms spending Reagan stated as late as 1986 that
ldquohellipthe threat from Soviet forces conventional and strategic from the Soviet drive for
domination from the increase in espionage and state terror remains great This is reality
Closing our eyes will not make reality disappearrdquo27
In a tongue-in-cheek address on August 11 1984 he quipped ldquoIrsquom pleased to tell you today
thathellipbombing [of Russia] begins in five minutesrdquo28 Albeit a joke the address shows the hostile
mentality of the president To defeat the Soviet Union even without a lsquohotrsquo war military strength
was vital Building military strength was a signal of intent It provided an increased capability of
25 Reagan ldquoAn American Liferdquo p71026 Kotkin ldquo Armageddon Averted rdquo p5727 Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4 1986rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed130407]28 Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1145
Nick Blackbourn 10
military action and also presented an economic challenge to Soviet Union to maintain parity (and
later as doctrine altered sufficiency) Creating strong Armed Forces was obviously a military
decision but the impact on the USSR was perhaps most importantly economic and Reagan was
well aware William Clark Reaganrsquos National Security Advisor between 1982 and 1983 explains
that
ldquoRonald Reagan wanted a complementary relationship between the US military
builduphellipand economic security policies directed at MoscowhellipFrankly our intention
was to divert priority Soviet resources to meeting future US capabilities beyond their
grasp and to persuade Moscow that they would not prevail in a toe-to-toe technological
competitionrdquo29
These may well be the words of a man attempting to cement his own contribution to the downfall of
the Soviet Union but his summary of the intentions of the Reagan build-up are corroborated by
Soviet Marshal Ogarkov is his book lsquoAlways in Readiness to Defend the Fatherlandrsquo in which he
highlights his own concerns over the pace of American technology30
Aside from his desire for freedom to ldquohelliptranscend communismhelliprdquo Reaganrsquos goal was to
restore American national pride following the negative reaction to the Vietnam years and the
apparent successes of communism in the 1970rsquos such as the recognition of Soviet dominated
Eastern Europe after the Helsinki Accords on August 1st 1975 and the advancement of
Communism in Latin America throughout the decade 31 One way Reagan sought to achieve this
29 Schweizer ldquoVictoryrdquo p13230 Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982) see also Weickhardt G ldquoTheWorld According To Ogarkovrdquo in ldquo International Security 8rdquo (Spring 1984) pp182-531 Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 17 1981rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1245
Nick Blackbourn 11
goal was to shake-up the American military and restore its prestige in society in addition to
strengthening its physical power
ldquohellipthere were many problems facing our nation the tragic neglect of our military
establishment high unemployment and an ailing economy the continuing expansion of
communism abroadhellipBut to me none was more serious than the fact America had lost
faith in itselfrdquo32 ldquoI told the Joint Chiefs of Staff that I wanted to make our men and
women proud to wear their uniforms againrdquo33
For Reagan the military held an important position within American society and as such he actively
sought to improve the power and standing of the Armed Forces In his opinion a military revival
would spearhead a spiritual revival34
The strengthening of the defence sector was in many ways
independent of the confrontational foreign policy that was outlined in NSDD seventy-five in its
own right the president wanted America to be lsquoproudrsquo once again Thus the build-up of US armed
forces was a keystone of domestic policy as well as being a vital component of foreign policy
The same was not true in the Soviet Union Gorbachev was not as sympathetic to military
concerns as previous Soviet leaders his priorities clearly lay away from the defence sector and he
sought to remove this hitherto ubiquitous bias within the Soviet system Gorbachev referred to a
meeting where
ldquoDmitry Fedorovich [Soviet Defence Minister 1976 - 1984] remarked casually that
he was fully aware that lsquodefence and breadrsquo were the key issues I corrected this
statement to me lsquobread and defencersquo was the right order of prioritiesrdquo35
32 Reagan ldquoAn American Liferdquo p21933 Ibid p23534 Ibid p21935 Gorbachev ldquoMemoirsrdquo p136
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1345
Nick Blackbourn 12
Though we can question the reliability of his memoirs which may well be presented in a
self-promoting manner Gorbachevrsquos actions in this period lend credence to his claim For example
the easy removal of military figures from power ldquohellipclearly show[s] that Soviet political leaders
[did] not instinctively agree with the priorities of the military establishmenthelliprdquo36
The Soviet
Premier was committed to reducing the grip of militarism over Soviet society and this was achieved
by delivering ldquohellipa series of deliberate symbolic slights of high commandrdquo37
Behind his desire to thaw the Cold War lay Gorbachevrsquos goal to demilitarise the Soviet Union
both economically and politically As Anatoly Chernayaev personal advisor on foreign affairs to
Gorbachev recalls
ldquo[It was] an imperative for Gorbachev that we had to put an end to the Cold War that
we had to reduce our military budget significantly that we had to limit our military
industrial complex in some way For him it was absolutely clear that would have to
negotiate with President Reaganhelliprdquo38
The rationale for bias in Chernayaevrsquos testimony is limited His statement reveals the emphasis of
policy rather than any of his own potential prejudice for or against Gorbachev as a person or as a
leader Furthermore the removal of the uncooperative military leader Soviet Defence Minister
Sokolov in 1987 demonstrates this trend Thus Gorbachev in his attempts to reform the Soviet
Union sought to instigate a decline in the power of the military first politically and then physically
in order to reduce the economic burden that such a large force placed on the Soviet economy
Evidently there was a clear contrast in geopolitical aspirations between the two
Superpowers Reagan harboured ambitions to increase Americarsquos military power in order that she
36 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p21737 Colton amp Gustafson ldquoSoldiers and the Staterdquo p3238 Schweizer ldquoVictoryrdquo p238
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1445
Nick Blackbourn 13
may take the initiative and end the Cold War Schweizer a contemporary political journalist in
Washington believes ldquoReagan had deeper ideological commitments and a strategic agenda that
went beyond real-politikhellipReagan not only spoke of the lsquoevil empirersquo and Marxism-Leninismrsquos
ending up on the lsquoash heap of historyrsquo he believed itrdquo39
The situation was quite the opposite in the
Soviet Union Gorbachev a pragmatist wanted hostilities to subside in order to allow the economic
and indeed political restructuring to permit the reduction of the military burden in the Soviet
Union His unilateral demobilisation of five hundred thousand Soviet troops announced at the UN
in 1988 shows his commitment to this direction in policy
The contrasting trends of militarization in America and demilitarization in the Soviet Union
would suggest a similar contrast in the influence of the military within each regime and this will
now be considered
Influence of the Defence Sectors in the USA and the USSR under Reagan and Gorbachev
The question of the influence of the military sector in Reaganrsquos and Gorbachevrsquos administrations
was an important one Reagan was much more open to the information presented to him from
within the military sphere than was Gorbachev Immediately following his inauguration Reagan had
authorised a thirty-three billion dollar increase in defence spending without even consulting the
military for their needs40 With this level of fiscal commitment to the American defence sector
Reagan was likely to utilise the information provided by his intelligence services Reaganrsquos
appointment of Bill Casey to head the CIA offers an insight as to the role of the Pentagon in the
Reagan administration
39 Ibid p17140 Garthoff ldquoThe Great Transitionrdquo p33
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Nick Blackbourn 14
Prior to his acceptance of position Casey demanded an office in the White House and his
inclusion in policy discussion Reagan accepted
ldquoCasey demanded an office in the White House complex He wanted easy access to
White House personal and the president not exile in Langley In politics as in
commercial real estate location is everything He could drop by the Oval Office and
informally influence policyrdquo41
The CIA chief now had direct access to the president He presented raw data on the Soviet
economy and defence-spending patterns were regularly passed onto the president Reagan was
guided towards lsquoshockingrsquo statistics on Soviet military spending which required urgent US
attention These reports Reagan said led him to muse that ldquohellipsomeone in the Kremlin had to
realize [sic] that in arming themselves to the teeth they were aggravating the desperate economic
problems in the Soviet Unionhelliprdquo42
However one must question whether these reports actually lead
to this conclusion or whether they simply corroborated the presidentrsquos own view Did the CIA
provide information that helped determine Americarsquos spending policies under Reagan or did it
simply justify policies Reagan had already chosen prior to Office It appears that rather than
assisting the formulation of policy directly information from the intelligence community was used
because it ldquohellipproved useful in supporting the US defence builduphelliprdquo43
Ronald Reaganrsquos
lsquocrusadingrsquo attitude towards ending communism meant that he leant much credence to CIA findings
when it supported his anti-Soviet Union view His intelligence budget increase of thirteen percent in
1981 perhaps ensured Americarsquos defence analyst community to follow Reaganrsquos own hard-line
view of the Soviet Union lest they politically weaken the hand that had increased their funding 44
41 Schweizer ldquoVictoryrdquo p242 Reagan ldquo An American Liferdquo p26843 Firth amp Noren ldquoSoviet Defence Spendingrdquo p8744 Schweizer ldquoVictoryrdquo p62
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Nick Blackbourn 15
Firth and Noren dispute this accusation contending that Soviet defence spending estimations were
ldquohellipnever cooked for political purposesrdquo45
However Firth and Noren were themselves part of the
CIA team that created such data and as such are unlikely to slight their own professional integrity
As Freedman recognises it is important to consider that Estimators do not work in ivory towers
but in a community with its own political structure They find themselves amongst colleagues who
share a particular adversary image and come perhaps subconsciously to adopt this image as their
own46
Intelligence integrity aside Reagan selectively utilised the information provided by his
military advisors Facts and figures presented to him particularly by the CIA were an important
tool in policy justification Schweizer argues that ldquo[Casey] was a key figure in the emerging United
States foreign policyhelliphis effect on policy is hard to underestimaterdquo47 However when CIA
information did not lend credence to Reaganrsquos own worldview it was disregarded The influence of
the military over Reagan is questionable its importance in the justification of policy rather than its
determination is not The stature if not the influence of the military in American politics grew
during the 1980rsquos
There could be no greater contrast to this trend of the increasing importance of the military
in politics than Gorbachevrsquos Premiership in the Soviet Union from 1985 Gorbachev was the first
Premier to have achieved his position without association with the military sector in his political
career For the first time in the history of the Soviet Union no serving military official sat in the
Politburo The reason for historian Galeotti was that ldquo[Gorbachev]helliplacked patience with his
generals and soon realized [sic] that he would have to rely on outmanoeuvring rather than
45 Firth amp Noren ldquoSoviet Defence Spendingrdquo p746 Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1977) p18547 Schweizer ldquoVictoryrdquo p14
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Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
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Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3445
Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 745
Nick Blackbourn 6
from the experience of hand-to-hand combat that America faced no other more insidious
or evil threat than that of communismrdquo11
Reagan was keen to instigate the downfall of the Soviet Union How much credit he can
individually command for the fall of communism is a topic beyond the scope of this study however
there is no doubt that the president actively sought to end the rule of the Communist Party in the
Eastern Bloc It was an individually driven ambition within his administration ldquoAt the time no one
in the administration (with the exception of Ronald Reagan) ever articulated a vision of a collapsing
Soviet edificerdquo12 This is not to suggest that Reagan was indeed a lsquoone man battalionrsquo in the fight
against communism but with his clear distain for the communist system any decision that would
weaken the USSR would be looked upon kindly by the president A classic case in point is
Reaganrsquos own brainchild the Strategic Defence Initiative and his rationale behind undertaking such
a project is ably outlined by Schweizer
ldquoWhile the presidentrsquos interest in SDI was largely based on his vision of a world no
longer facing nuclear peril the system was also pursued because of the strain it would
place on the Soviet economyrdquo13
The policies and spending initiatives undertaken during the Reagan presidency wherever possible
included aspects that could undermine the Soviet system Another example is Reaganrsquos relationship
with Saudi Arabia which ultimately lowered world oil prices and devastated Soviet foreign
currency earnings as a result These anti-Soviet initiatives undoubtedly represent the tone of
Reaganrsquos years in the White House The release of National Security Decision Directive seventy-
five on January 17th 1983 signed by Reagan clearly summed this subversive attitude towards the
Soviet Union which highlighted the key objectives of policy to be
11 Ibid p11512 Schweizer ldquoVictoryrdquo p28213 Ibid p135
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 845
Nick Blackbourn 7
ldquohellipexternal resistance to Soviet imperialism internal pressure on the USSR to weaken
the sources of Soviet imperialismhellipthe US must convey clearly to Moscow that
unacceptable costs will incur costs that would outweigh any gainhelliprdquo14
Although Garthoff has questioned the true significance of NSDD seventy-five (ldquohellipthe ambiguity in
the presidentrsquos directive reflected Reaganrsquos ambivalencerdquo15
) there is no doubt that President
Reagan did believe that the Cold War could be won and the policy choices he made reflected this
attitude Five thousand miles away in Moscow Gorbachev viewed the future of Cold War tensions
in very different terms
Mikhail Gorbachev appointed General Secretary of the Communist Party on 11
th
March
1985 was a faithful communist and according to Kotkin a ldquohelliptrue believerhelliprdquo16
He still thought
that the Party ldquohellipwas a force capable of uniting societyhelliprdquo17 The Premier was also a realist
stemming from his days as a student at Moscow State Universityrsquos law faculty His pragmatic
approach meant he
ldquohellipwanted to see a world bound by sensible codes of conduct He was also a deal-
maker by nature and preferred to create a world in which he could haggle and persuade
rather than be locked in military confrontationrdquo 18
In order to achieve his goals for the political and economic restructuring under lsquoPerestroikarsquo he felt
the Soviet Union was obligated ldquohellipto change our relationship with the West particularly the US
and bring the costly and dangerous arms race to an endrdquo19 A Cold War de-escalation was necessary
14 National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquo ldquoFederation of American
Scientists Intelligence Resource Programrdquo lthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]see also Bailey N ldquoThe Strategy That Won the Cold Warrdquo p2915 Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo (Washington DCThe Brookings Institute 1994) p3316 Kotkin ldquo Armageddon Averted rdquo p3117 Gorbachev M ldquo Memoirsrdquo (London Bantam 1996) p16818 Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997) p6019 Gorbachev ldquo Memoirsrdquo p171
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Nick Blackbourn 8
to give the Soviet economy breathing space to lower its defence commitments and re-orientate itself
away from economic militarism
ldquoYes wersquove achieved strategic military parity with the Unites States And no-one
counted how much it cost ushellipLetrsquos make a thorough analysis of what a strong modern
army is what ensuring security means what the quality of security consists of And
when we know how much all this costs we can cut out the restrdquo20
To ideologically justify these cuts in military spending to the Politburo and Defence Council who
remained convinced of western hostility towards them Gorbachev attempted to lower the external
threat presented by the US
21
This was not an uncommon practice according to Meyer ldquohellipSoviet
military doctrine can be changed to fit economic assumptions In essence if you canrsquot afford the
requirements change the threatrdquo22
Much of Gorbachevrsquos rhetoric emanated from his professed distain for conflict and nuclear
proliferation ldquoThe arms race like nuclear war itself cannot be wonhellipSecurity is a political
problem and it can be solved only by political meansrdquo23 Gorbachev was too young to remember
the horrors of the Second World War that dominated the decisions made by the older members of
the Politburo He rejected the policy of continued military build-up to prevent a repeat of the
surprise Nazi invasion in June 1941 and instead highlighted the importance of farsighted diplomacy
to ensure Soviet security24 On April 26th 1986 the ldquoChernobyl disasterrdquo furthered his anti-military
disposition which was regarded by Gorbachev as ldquohellipa lsquofinal warningrsquohellipChernobyl has left a strong
20 Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park Pennsylvania State UniversityPress 2000) p19221 See Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins 1987)22 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco 1997) p21723 Gorbachev ldquoMemoirsrdquo p18524 Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson T ldquoSoldiers and the Soviet
State Civil-Military Relations from Brezhnev to Gorbachevrdquo (Princeton Princeton University Press 1990) p78
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Nick Blackbourn 9
anti-nuclear streak in Gorbachevrsquos thinkingrdquo25 The Soviet Premier was forced into demilitarisation
by the economic straitjacket the Soviet Union found itself in but it was a measure he was more than
happy to pursue in his attempts to attain a lsquohuman facersquo for Socialism26
Aside from a shared distain for nuclear weapons we can see a marked contrast in how the
two leaders viewed the world and their position within it Reagan wanted a final victory whereas
Gorbachev hoped to back down and alleviate Cold War tension to provide breathing space for
structural reforms to take effect We now turn to how these views were manifested in the two
leadersrsquo military objectives and outcomes
The Military Objectives of President Reagan and Premier Gorbachev
Reagan wanted to escalate and lsquowinrsquo the Cold War and thus proceeded to practise confrontation in
foreign policy backed by increased arms spending Reagan stated as late as 1986 that
ldquohellipthe threat from Soviet forces conventional and strategic from the Soviet drive for
domination from the increase in espionage and state terror remains great This is reality
Closing our eyes will not make reality disappearrdquo27
In a tongue-in-cheek address on August 11 1984 he quipped ldquoIrsquom pleased to tell you today
thathellipbombing [of Russia] begins in five minutesrdquo28 Albeit a joke the address shows the hostile
mentality of the president To defeat the Soviet Union even without a lsquohotrsquo war military strength
was vital Building military strength was a signal of intent It provided an increased capability of
25 Reagan ldquoAn American Liferdquo p71026 Kotkin ldquo Armageddon Averted rdquo p5727 Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4 1986rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed130407]28 Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
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Nick Blackbourn 10
military action and also presented an economic challenge to Soviet Union to maintain parity (and
later as doctrine altered sufficiency) Creating strong Armed Forces was obviously a military
decision but the impact on the USSR was perhaps most importantly economic and Reagan was
well aware William Clark Reaganrsquos National Security Advisor between 1982 and 1983 explains
that
ldquoRonald Reagan wanted a complementary relationship between the US military
builduphellipand economic security policies directed at MoscowhellipFrankly our intention
was to divert priority Soviet resources to meeting future US capabilities beyond their
grasp and to persuade Moscow that they would not prevail in a toe-to-toe technological
competitionrdquo29
These may well be the words of a man attempting to cement his own contribution to the downfall of
the Soviet Union but his summary of the intentions of the Reagan build-up are corroborated by
Soviet Marshal Ogarkov is his book lsquoAlways in Readiness to Defend the Fatherlandrsquo in which he
highlights his own concerns over the pace of American technology30
Aside from his desire for freedom to ldquohelliptranscend communismhelliprdquo Reaganrsquos goal was to
restore American national pride following the negative reaction to the Vietnam years and the
apparent successes of communism in the 1970rsquos such as the recognition of Soviet dominated
Eastern Europe after the Helsinki Accords on August 1st 1975 and the advancement of
Communism in Latin America throughout the decade 31 One way Reagan sought to achieve this
29 Schweizer ldquoVictoryrdquo p13230 Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982) see also Weickhardt G ldquoTheWorld According To Ogarkovrdquo in ldquo International Security 8rdquo (Spring 1984) pp182-531 Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 17 1981rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed130407]
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Nick Blackbourn 11
goal was to shake-up the American military and restore its prestige in society in addition to
strengthening its physical power
ldquohellipthere were many problems facing our nation the tragic neglect of our military
establishment high unemployment and an ailing economy the continuing expansion of
communism abroadhellipBut to me none was more serious than the fact America had lost
faith in itselfrdquo32 ldquoI told the Joint Chiefs of Staff that I wanted to make our men and
women proud to wear their uniforms againrdquo33
For Reagan the military held an important position within American society and as such he actively
sought to improve the power and standing of the Armed Forces In his opinion a military revival
would spearhead a spiritual revival34
The strengthening of the defence sector was in many ways
independent of the confrontational foreign policy that was outlined in NSDD seventy-five in its
own right the president wanted America to be lsquoproudrsquo once again Thus the build-up of US armed
forces was a keystone of domestic policy as well as being a vital component of foreign policy
The same was not true in the Soviet Union Gorbachev was not as sympathetic to military
concerns as previous Soviet leaders his priorities clearly lay away from the defence sector and he
sought to remove this hitherto ubiquitous bias within the Soviet system Gorbachev referred to a
meeting where
ldquoDmitry Fedorovich [Soviet Defence Minister 1976 - 1984] remarked casually that
he was fully aware that lsquodefence and breadrsquo were the key issues I corrected this
statement to me lsquobread and defencersquo was the right order of prioritiesrdquo35
32 Reagan ldquoAn American Liferdquo p21933 Ibid p23534 Ibid p21935 Gorbachev ldquoMemoirsrdquo p136
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Nick Blackbourn 12
Though we can question the reliability of his memoirs which may well be presented in a
self-promoting manner Gorbachevrsquos actions in this period lend credence to his claim For example
the easy removal of military figures from power ldquohellipclearly show[s] that Soviet political leaders
[did] not instinctively agree with the priorities of the military establishmenthelliprdquo36
The Soviet
Premier was committed to reducing the grip of militarism over Soviet society and this was achieved
by delivering ldquohellipa series of deliberate symbolic slights of high commandrdquo37
Behind his desire to thaw the Cold War lay Gorbachevrsquos goal to demilitarise the Soviet Union
both economically and politically As Anatoly Chernayaev personal advisor on foreign affairs to
Gorbachev recalls
ldquo[It was] an imperative for Gorbachev that we had to put an end to the Cold War that
we had to reduce our military budget significantly that we had to limit our military
industrial complex in some way For him it was absolutely clear that would have to
negotiate with President Reaganhelliprdquo38
The rationale for bias in Chernayaevrsquos testimony is limited His statement reveals the emphasis of
policy rather than any of his own potential prejudice for or against Gorbachev as a person or as a
leader Furthermore the removal of the uncooperative military leader Soviet Defence Minister
Sokolov in 1987 demonstrates this trend Thus Gorbachev in his attempts to reform the Soviet
Union sought to instigate a decline in the power of the military first politically and then physically
in order to reduce the economic burden that such a large force placed on the Soviet economy
Evidently there was a clear contrast in geopolitical aspirations between the two
Superpowers Reagan harboured ambitions to increase Americarsquos military power in order that she
36 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p21737 Colton amp Gustafson ldquoSoldiers and the Staterdquo p3238 Schweizer ldquoVictoryrdquo p238
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Nick Blackbourn 13
may take the initiative and end the Cold War Schweizer a contemporary political journalist in
Washington believes ldquoReagan had deeper ideological commitments and a strategic agenda that
went beyond real-politikhellipReagan not only spoke of the lsquoevil empirersquo and Marxism-Leninismrsquos
ending up on the lsquoash heap of historyrsquo he believed itrdquo39
The situation was quite the opposite in the
Soviet Union Gorbachev a pragmatist wanted hostilities to subside in order to allow the economic
and indeed political restructuring to permit the reduction of the military burden in the Soviet
Union His unilateral demobilisation of five hundred thousand Soviet troops announced at the UN
in 1988 shows his commitment to this direction in policy
The contrasting trends of militarization in America and demilitarization in the Soviet Union
would suggest a similar contrast in the influence of the military within each regime and this will
now be considered
Influence of the Defence Sectors in the USA and the USSR under Reagan and Gorbachev
The question of the influence of the military sector in Reaganrsquos and Gorbachevrsquos administrations
was an important one Reagan was much more open to the information presented to him from
within the military sphere than was Gorbachev Immediately following his inauguration Reagan had
authorised a thirty-three billion dollar increase in defence spending without even consulting the
military for their needs40 With this level of fiscal commitment to the American defence sector
Reagan was likely to utilise the information provided by his intelligence services Reaganrsquos
appointment of Bill Casey to head the CIA offers an insight as to the role of the Pentagon in the
Reagan administration
39 Ibid p17140 Garthoff ldquoThe Great Transitionrdquo p33
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Nick Blackbourn 14
Prior to his acceptance of position Casey demanded an office in the White House and his
inclusion in policy discussion Reagan accepted
ldquoCasey demanded an office in the White House complex He wanted easy access to
White House personal and the president not exile in Langley In politics as in
commercial real estate location is everything He could drop by the Oval Office and
informally influence policyrdquo41
The CIA chief now had direct access to the president He presented raw data on the Soviet
economy and defence-spending patterns were regularly passed onto the president Reagan was
guided towards lsquoshockingrsquo statistics on Soviet military spending which required urgent US
attention These reports Reagan said led him to muse that ldquohellipsomeone in the Kremlin had to
realize [sic] that in arming themselves to the teeth they were aggravating the desperate economic
problems in the Soviet Unionhelliprdquo42
However one must question whether these reports actually lead
to this conclusion or whether they simply corroborated the presidentrsquos own view Did the CIA
provide information that helped determine Americarsquos spending policies under Reagan or did it
simply justify policies Reagan had already chosen prior to Office It appears that rather than
assisting the formulation of policy directly information from the intelligence community was used
because it ldquohellipproved useful in supporting the US defence builduphelliprdquo43
Ronald Reaganrsquos
lsquocrusadingrsquo attitude towards ending communism meant that he leant much credence to CIA findings
when it supported his anti-Soviet Union view His intelligence budget increase of thirteen percent in
1981 perhaps ensured Americarsquos defence analyst community to follow Reaganrsquos own hard-line
view of the Soviet Union lest they politically weaken the hand that had increased their funding 44
41 Schweizer ldquoVictoryrdquo p242 Reagan ldquo An American Liferdquo p26843 Firth amp Noren ldquoSoviet Defence Spendingrdquo p8744 Schweizer ldquoVictoryrdquo p62
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Nick Blackbourn 15
Firth and Noren dispute this accusation contending that Soviet defence spending estimations were
ldquohellipnever cooked for political purposesrdquo45
However Firth and Noren were themselves part of the
CIA team that created such data and as such are unlikely to slight their own professional integrity
As Freedman recognises it is important to consider that Estimators do not work in ivory towers
but in a community with its own political structure They find themselves amongst colleagues who
share a particular adversary image and come perhaps subconsciously to adopt this image as their
own46
Intelligence integrity aside Reagan selectively utilised the information provided by his
military advisors Facts and figures presented to him particularly by the CIA were an important
tool in policy justification Schweizer argues that ldquo[Casey] was a key figure in the emerging United
States foreign policyhelliphis effect on policy is hard to underestimaterdquo47 However when CIA
information did not lend credence to Reaganrsquos own worldview it was disregarded The influence of
the military over Reagan is questionable its importance in the justification of policy rather than its
determination is not The stature if not the influence of the military in American politics grew
during the 1980rsquos
There could be no greater contrast to this trend of the increasing importance of the military
in politics than Gorbachevrsquos Premiership in the Soviet Union from 1985 Gorbachev was the first
Premier to have achieved his position without association with the military sector in his political
career For the first time in the history of the Soviet Union no serving military official sat in the
Politburo The reason for historian Galeotti was that ldquo[Gorbachev]helliplacked patience with his
generals and soon realized [sic] that he would have to rely on outmanoeuvring rather than
45 Firth amp Noren ldquoSoviet Defence Spendingrdquo p746 Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1977) p18547 Schweizer ldquoVictoryrdquo p14
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Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
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Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
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Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 845
Nick Blackbourn 7
ldquohellipexternal resistance to Soviet imperialism internal pressure on the USSR to weaken
the sources of Soviet imperialismhellipthe US must convey clearly to Moscow that
unacceptable costs will incur costs that would outweigh any gainhelliprdquo14
Although Garthoff has questioned the true significance of NSDD seventy-five (ldquohellipthe ambiguity in
the presidentrsquos directive reflected Reaganrsquos ambivalencerdquo15
) there is no doubt that President
Reagan did believe that the Cold War could be won and the policy choices he made reflected this
attitude Five thousand miles away in Moscow Gorbachev viewed the future of Cold War tensions
in very different terms
Mikhail Gorbachev appointed General Secretary of the Communist Party on 11
th
March
1985 was a faithful communist and according to Kotkin a ldquohelliptrue believerhelliprdquo16
He still thought
that the Party ldquohellipwas a force capable of uniting societyhelliprdquo17 The Premier was also a realist
stemming from his days as a student at Moscow State Universityrsquos law faculty His pragmatic
approach meant he
ldquohellipwanted to see a world bound by sensible codes of conduct He was also a deal-
maker by nature and preferred to create a world in which he could haggle and persuade
rather than be locked in military confrontationrdquo 18
In order to achieve his goals for the political and economic restructuring under lsquoPerestroikarsquo he felt
the Soviet Union was obligated ldquohellipto change our relationship with the West particularly the US
and bring the costly and dangerous arms race to an endrdquo19 A Cold War de-escalation was necessary
14 National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquo ldquoFederation of American
Scientists Intelligence Resource Programrdquo lthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]see also Bailey N ldquoThe Strategy That Won the Cold Warrdquo p2915 Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo (Washington DCThe Brookings Institute 1994) p3316 Kotkin ldquo Armageddon Averted rdquo p3117 Gorbachev M ldquo Memoirsrdquo (London Bantam 1996) p16818 Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997) p6019 Gorbachev ldquo Memoirsrdquo p171
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 945
Nick Blackbourn 8
to give the Soviet economy breathing space to lower its defence commitments and re-orientate itself
away from economic militarism
ldquoYes wersquove achieved strategic military parity with the Unites States And no-one
counted how much it cost ushellipLetrsquos make a thorough analysis of what a strong modern
army is what ensuring security means what the quality of security consists of And
when we know how much all this costs we can cut out the restrdquo20
To ideologically justify these cuts in military spending to the Politburo and Defence Council who
remained convinced of western hostility towards them Gorbachev attempted to lower the external
threat presented by the US
21
This was not an uncommon practice according to Meyer ldquohellipSoviet
military doctrine can be changed to fit economic assumptions In essence if you canrsquot afford the
requirements change the threatrdquo22
Much of Gorbachevrsquos rhetoric emanated from his professed distain for conflict and nuclear
proliferation ldquoThe arms race like nuclear war itself cannot be wonhellipSecurity is a political
problem and it can be solved only by political meansrdquo23 Gorbachev was too young to remember
the horrors of the Second World War that dominated the decisions made by the older members of
the Politburo He rejected the policy of continued military build-up to prevent a repeat of the
surprise Nazi invasion in June 1941 and instead highlighted the importance of farsighted diplomacy
to ensure Soviet security24 On April 26th 1986 the ldquoChernobyl disasterrdquo furthered his anti-military
disposition which was regarded by Gorbachev as ldquohellipa lsquofinal warningrsquohellipChernobyl has left a strong
20 Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park Pennsylvania State UniversityPress 2000) p19221 See Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins 1987)22 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco 1997) p21723 Gorbachev ldquoMemoirsrdquo p18524 Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson T ldquoSoldiers and the Soviet
State Civil-Military Relations from Brezhnev to Gorbachevrdquo (Princeton Princeton University Press 1990) p78
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1045
Nick Blackbourn 9
anti-nuclear streak in Gorbachevrsquos thinkingrdquo25 The Soviet Premier was forced into demilitarisation
by the economic straitjacket the Soviet Union found itself in but it was a measure he was more than
happy to pursue in his attempts to attain a lsquohuman facersquo for Socialism26
Aside from a shared distain for nuclear weapons we can see a marked contrast in how the
two leaders viewed the world and their position within it Reagan wanted a final victory whereas
Gorbachev hoped to back down and alleviate Cold War tension to provide breathing space for
structural reforms to take effect We now turn to how these views were manifested in the two
leadersrsquo military objectives and outcomes
The Military Objectives of President Reagan and Premier Gorbachev
Reagan wanted to escalate and lsquowinrsquo the Cold War and thus proceeded to practise confrontation in
foreign policy backed by increased arms spending Reagan stated as late as 1986 that
ldquohellipthe threat from Soviet forces conventional and strategic from the Soviet drive for
domination from the increase in espionage and state terror remains great This is reality
Closing our eyes will not make reality disappearrdquo27
In a tongue-in-cheek address on August 11 1984 he quipped ldquoIrsquom pleased to tell you today
thathellipbombing [of Russia] begins in five minutesrdquo28 Albeit a joke the address shows the hostile
mentality of the president To defeat the Soviet Union even without a lsquohotrsquo war military strength
was vital Building military strength was a signal of intent It provided an increased capability of
25 Reagan ldquoAn American Liferdquo p71026 Kotkin ldquo Armageddon Averted rdquo p5727 Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4 1986rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed130407]28 Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1145
Nick Blackbourn 10
military action and also presented an economic challenge to Soviet Union to maintain parity (and
later as doctrine altered sufficiency) Creating strong Armed Forces was obviously a military
decision but the impact on the USSR was perhaps most importantly economic and Reagan was
well aware William Clark Reaganrsquos National Security Advisor between 1982 and 1983 explains
that
ldquoRonald Reagan wanted a complementary relationship between the US military
builduphellipand economic security policies directed at MoscowhellipFrankly our intention
was to divert priority Soviet resources to meeting future US capabilities beyond their
grasp and to persuade Moscow that they would not prevail in a toe-to-toe technological
competitionrdquo29
These may well be the words of a man attempting to cement his own contribution to the downfall of
the Soviet Union but his summary of the intentions of the Reagan build-up are corroborated by
Soviet Marshal Ogarkov is his book lsquoAlways in Readiness to Defend the Fatherlandrsquo in which he
highlights his own concerns over the pace of American technology30
Aside from his desire for freedom to ldquohelliptranscend communismhelliprdquo Reaganrsquos goal was to
restore American national pride following the negative reaction to the Vietnam years and the
apparent successes of communism in the 1970rsquos such as the recognition of Soviet dominated
Eastern Europe after the Helsinki Accords on August 1st 1975 and the advancement of
Communism in Latin America throughout the decade 31 One way Reagan sought to achieve this
29 Schweizer ldquoVictoryrdquo p13230 Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982) see also Weickhardt G ldquoTheWorld According To Ogarkovrdquo in ldquo International Security 8rdquo (Spring 1984) pp182-531 Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 17 1981rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1245
Nick Blackbourn 11
goal was to shake-up the American military and restore its prestige in society in addition to
strengthening its physical power
ldquohellipthere were many problems facing our nation the tragic neglect of our military
establishment high unemployment and an ailing economy the continuing expansion of
communism abroadhellipBut to me none was more serious than the fact America had lost
faith in itselfrdquo32 ldquoI told the Joint Chiefs of Staff that I wanted to make our men and
women proud to wear their uniforms againrdquo33
For Reagan the military held an important position within American society and as such he actively
sought to improve the power and standing of the Armed Forces In his opinion a military revival
would spearhead a spiritual revival34
The strengthening of the defence sector was in many ways
independent of the confrontational foreign policy that was outlined in NSDD seventy-five in its
own right the president wanted America to be lsquoproudrsquo once again Thus the build-up of US armed
forces was a keystone of domestic policy as well as being a vital component of foreign policy
The same was not true in the Soviet Union Gorbachev was not as sympathetic to military
concerns as previous Soviet leaders his priorities clearly lay away from the defence sector and he
sought to remove this hitherto ubiquitous bias within the Soviet system Gorbachev referred to a
meeting where
ldquoDmitry Fedorovich [Soviet Defence Minister 1976 - 1984] remarked casually that
he was fully aware that lsquodefence and breadrsquo were the key issues I corrected this
statement to me lsquobread and defencersquo was the right order of prioritiesrdquo35
32 Reagan ldquoAn American Liferdquo p21933 Ibid p23534 Ibid p21935 Gorbachev ldquoMemoirsrdquo p136
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1345
Nick Blackbourn 12
Though we can question the reliability of his memoirs which may well be presented in a
self-promoting manner Gorbachevrsquos actions in this period lend credence to his claim For example
the easy removal of military figures from power ldquohellipclearly show[s] that Soviet political leaders
[did] not instinctively agree with the priorities of the military establishmenthelliprdquo36
The Soviet
Premier was committed to reducing the grip of militarism over Soviet society and this was achieved
by delivering ldquohellipa series of deliberate symbolic slights of high commandrdquo37
Behind his desire to thaw the Cold War lay Gorbachevrsquos goal to demilitarise the Soviet Union
both economically and politically As Anatoly Chernayaev personal advisor on foreign affairs to
Gorbachev recalls
ldquo[It was] an imperative for Gorbachev that we had to put an end to the Cold War that
we had to reduce our military budget significantly that we had to limit our military
industrial complex in some way For him it was absolutely clear that would have to
negotiate with President Reaganhelliprdquo38
The rationale for bias in Chernayaevrsquos testimony is limited His statement reveals the emphasis of
policy rather than any of his own potential prejudice for or against Gorbachev as a person or as a
leader Furthermore the removal of the uncooperative military leader Soviet Defence Minister
Sokolov in 1987 demonstrates this trend Thus Gorbachev in his attempts to reform the Soviet
Union sought to instigate a decline in the power of the military first politically and then physically
in order to reduce the economic burden that such a large force placed on the Soviet economy
Evidently there was a clear contrast in geopolitical aspirations between the two
Superpowers Reagan harboured ambitions to increase Americarsquos military power in order that she
36 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p21737 Colton amp Gustafson ldquoSoldiers and the Staterdquo p3238 Schweizer ldquoVictoryrdquo p238
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1445
Nick Blackbourn 13
may take the initiative and end the Cold War Schweizer a contemporary political journalist in
Washington believes ldquoReagan had deeper ideological commitments and a strategic agenda that
went beyond real-politikhellipReagan not only spoke of the lsquoevil empirersquo and Marxism-Leninismrsquos
ending up on the lsquoash heap of historyrsquo he believed itrdquo39
The situation was quite the opposite in the
Soviet Union Gorbachev a pragmatist wanted hostilities to subside in order to allow the economic
and indeed political restructuring to permit the reduction of the military burden in the Soviet
Union His unilateral demobilisation of five hundred thousand Soviet troops announced at the UN
in 1988 shows his commitment to this direction in policy
The contrasting trends of militarization in America and demilitarization in the Soviet Union
would suggest a similar contrast in the influence of the military within each regime and this will
now be considered
Influence of the Defence Sectors in the USA and the USSR under Reagan and Gorbachev
The question of the influence of the military sector in Reaganrsquos and Gorbachevrsquos administrations
was an important one Reagan was much more open to the information presented to him from
within the military sphere than was Gorbachev Immediately following his inauguration Reagan had
authorised a thirty-three billion dollar increase in defence spending without even consulting the
military for their needs40 With this level of fiscal commitment to the American defence sector
Reagan was likely to utilise the information provided by his intelligence services Reaganrsquos
appointment of Bill Casey to head the CIA offers an insight as to the role of the Pentagon in the
Reagan administration
39 Ibid p17140 Garthoff ldquoThe Great Transitionrdquo p33
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1545
Nick Blackbourn 14
Prior to his acceptance of position Casey demanded an office in the White House and his
inclusion in policy discussion Reagan accepted
ldquoCasey demanded an office in the White House complex He wanted easy access to
White House personal and the president not exile in Langley In politics as in
commercial real estate location is everything He could drop by the Oval Office and
informally influence policyrdquo41
The CIA chief now had direct access to the president He presented raw data on the Soviet
economy and defence-spending patterns were regularly passed onto the president Reagan was
guided towards lsquoshockingrsquo statistics on Soviet military spending which required urgent US
attention These reports Reagan said led him to muse that ldquohellipsomeone in the Kremlin had to
realize [sic] that in arming themselves to the teeth they were aggravating the desperate economic
problems in the Soviet Unionhelliprdquo42
However one must question whether these reports actually lead
to this conclusion or whether they simply corroborated the presidentrsquos own view Did the CIA
provide information that helped determine Americarsquos spending policies under Reagan or did it
simply justify policies Reagan had already chosen prior to Office It appears that rather than
assisting the formulation of policy directly information from the intelligence community was used
because it ldquohellipproved useful in supporting the US defence builduphelliprdquo43
Ronald Reaganrsquos
lsquocrusadingrsquo attitude towards ending communism meant that he leant much credence to CIA findings
when it supported his anti-Soviet Union view His intelligence budget increase of thirteen percent in
1981 perhaps ensured Americarsquos defence analyst community to follow Reaganrsquos own hard-line
view of the Soviet Union lest they politically weaken the hand that had increased their funding 44
41 Schweizer ldquoVictoryrdquo p242 Reagan ldquo An American Liferdquo p26843 Firth amp Noren ldquoSoviet Defence Spendingrdquo p8744 Schweizer ldquoVictoryrdquo p62
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1645
Nick Blackbourn 15
Firth and Noren dispute this accusation contending that Soviet defence spending estimations were
ldquohellipnever cooked for political purposesrdquo45
However Firth and Noren were themselves part of the
CIA team that created such data and as such are unlikely to slight their own professional integrity
As Freedman recognises it is important to consider that Estimators do not work in ivory towers
but in a community with its own political structure They find themselves amongst colleagues who
share a particular adversary image and come perhaps subconsciously to adopt this image as their
own46
Intelligence integrity aside Reagan selectively utilised the information provided by his
military advisors Facts and figures presented to him particularly by the CIA were an important
tool in policy justification Schweizer argues that ldquo[Casey] was a key figure in the emerging United
States foreign policyhelliphis effect on policy is hard to underestimaterdquo47 However when CIA
information did not lend credence to Reaganrsquos own worldview it was disregarded The influence of
the military over Reagan is questionable its importance in the justification of policy rather than its
determination is not The stature if not the influence of the military in American politics grew
during the 1980rsquos
There could be no greater contrast to this trend of the increasing importance of the military
in politics than Gorbachevrsquos Premiership in the Soviet Union from 1985 Gorbachev was the first
Premier to have achieved his position without association with the military sector in his political
career For the first time in the history of the Soviet Union no serving military official sat in the
Politburo The reason for historian Galeotti was that ldquo[Gorbachev]helliplacked patience with his
generals and soon realized [sic] that he would have to rely on outmanoeuvring rather than
45 Firth amp Noren ldquoSoviet Defence Spendingrdquo p746 Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1977) p18547 Schweizer ldquoVictoryrdquo p14
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1745
Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
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Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3445
Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3645
Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3945
Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 945
Nick Blackbourn 8
to give the Soviet economy breathing space to lower its defence commitments and re-orientate itself
away from economic militarism
ldquoYes wersquove achieved strategic military parity with the Unites States And no-one
counted how much it cost ushellipLetrsquos make a thorough analysis of what a strong modern
army is what ensuring security means what the quality of security consists of And
when we know how much all this costs we can cut out the restrdquo20
To ideologically justify these cuts in military spending to the Politburo and Defence Council who
remained convinced of western hostility towards them Gorbachev attempted to lower the external
threat presented by the US
21
This was not an uncommon practice according to Meyer ldquohellipSoviet
military doctrine can be changed to fit economic assumptions In essence if you canrsquot afford the
requirements change the threatrdquo22
Much of Gorbachevrsquos rhetoric emanated from his professed distain for conflict and nuclear
proliferation ldquoThe arms race like nuclear war itself cannot be wonhellipSecurity is a political
problem and it can be solved only by political meansrdquo23 Gorbachev was too young to remember
the horrors of the Second World War that dominated the decisions made by the older members of
the Politburo He rejected the policy of continued military build-up to prevent a repeat of the
surprise Nazi invasion in June 1941 and instead highlighted the importance of farsighted diplomacy
to ensure Soviet security24 On April 26th 1986 the ldquoChernobyl disasterrdquo furthered his anti-military
disposition which was regarded by Gorbachev as ldquohellipa lsquofinal warningrsquohellipChernobyl has left a strong
20 Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park Pennsylvania State UniversityPress 2000) p19221 See Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins 1987)22 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco 1997) p21723 Gorbachev ldquoMemoirsrdquo p18524 Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson T ldquoSoldiers and the Soviet
State Civil-Military Relations from Brezhnev to Gorbachevrdquo (Princeton Princeton University Press 1990) p78
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1045
Nick Blackbourn 9
anti-nuclear streak in Gorbachevrsquos thinkingrdquo25 The Soviet Premier was forced into demilitarisation
by the economic straitjacket the Soviet Union found itself in but it was a measure he was more than
happy to pursue in his attempts to attain a lsquohuman facersquo for Socialism26
Aside from a shared distain for nuclear weapons we can see a marked contrast in how the
two leaders viewed the world and their position within it Reagan wanted a final victory whereas
Gorbachev hoped to back down and alleviate Cold War tension to provide breathing space for
structural reforms to take effect We now turn to how these views were manifested in the two
leadersrsquo military objectives and outcomes
The Military Objectives of President Reagan and Premier Gorbachev
Reagan wanted to escalate and lsquowinrsquo the Cold War and thus proceeded to practise confrontation in
foreign policy backed by increased arms spending Reagan stated as late as 1986 that
ldquohellipthe threat from Soviet forces conventional and strategic from the Soviet drive for
domination from the increase in espionage and state terror remains great This is reality
Closing our eyes will not make reality disappearrdquo27
In a tongue-in-cheek address on August 11 1984 he quipped ldquoIrsquom pleased to tell you today
thathellipbombing [of Russia] begins in five minutesrdquo28 Albeit a joke the address shows the hostile
mentality of the president To defeat the Soviet Union even without a lsquohotrsquo war military strength
was vital Building military strength was a signal of intent It provided an increased capability of
25 Reagan ldquoAn American Liferdquo p71026 Kotkin ldquo Armageddon Averted rdquo p5727 Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4 1986rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed130407]28 Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1145
Nick Blackbourn 10
military action and also presented an economic challenge to Soviet Union to maintain parity (and
later as doctrine altered sufficiency) Creating strong Armed Forces was obviously a military
decision but the impact on the USSR was perhaps most importantly economic and Reagan was
well aware William Clark Reaganrsquos National Security Advisor between 1982 and 1983 explains
that
ldquoRonald Reagan wanted a complementary relationship between the US military
builduphellipand economic security policies directed at MoscowhellipFrankly our intention
was to divert priority Soviet resources to meeting future US capabilities beyond their
grasp and to persuade Moscow that they would not prevail in a toe-to-toe technological
competitionrdquo29
These may well be the words of a man attempting to cement his own contribution to the downfall of
the Soviet Union but his summary of the intentions of the Reagan build-up are corroborated by
Soviet Marshal Ogarkov is his book lsquoAlways in Readiness to Defend the Fatherlandrsquo in which he
highlights his own concerns over the pace of American technology30
Aside from his desire for freedom to ldquohelliptranscend communismhelliprdquo Reaganrsquos goal was to
restore American national pride following the negative reaction to the Vietnam years and the
apparent successes of communism in the 1970rsquos such as the recognition of Soviet dominated
Eastern Europe after the Helsinki Accords on August 1st 1975 and the advancement of
Communism in Latin America throughout the decade 31 One way Reagan sought to achieve this
29 Schweizer ldquoVictoryrdquo p13230 Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982) see also Weickhardt G ldquoTheWorld According To Ogarkovrdquo in ldquo International Security 8rdquo (Spring 1984) pp182-531 Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 17 1981rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1245
Nick Blackbourn 11
goal was to shake-up the American military and restore its prestige in society in addition to
strengthening its physical power
ldquohellipthere were many problems facing our nation the tragic neglect of our military
establishment high unemployment and an ailing economy the continuing expansion of
communism abroadhellipBut to me none was more serious than the fact America had lost
faith in itselfrdquo32 ldquoI told the Joint Chiefs of Staff that I wanted to make our men and
women proud to wear their uniforms againrdquo33
For Reagan the military held an important position within American society and as such he actively
sought to improve the power and standing of the Armed Forces In his opinion a military revival
would spearhead a spiritual revival34
The strengthening of the defence sector was in many ways
independent of the confrontational foreign policy that was outlined in NSDD seventy-five in its
own right the president wanted America to be lsquoproudrsquo once again Thus the build-up of US armed
forces was a keystone of domestic policy as well as being a vital component of foreign policy
The same was not true in the Soviet Union Gorbachev was not as sympathetic to military
concerns as previous Soviet leaders his priorities clearly lay away from the defence sector and he
sought to remove this hitherto ubiquitous bias within the Soviet system Gorbachev referred to a
meeting where
ldquoDmitry Fedorovich [Soviet Defence Minister 1976 - 1984] remarked casually that
he was fully aware that lsquodefence and breadrsquo were the key issues I corrected this
statement to me lsquobread and defencersquo was the right order of prioritiesrdquo35
32 Reagan ldquoAn American Liferdquo p21933 Ibid p23534 Ibid p21935 Gorbachev ldquoMemoirsrdquo p136
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Nick Blackbourn 12
Though we can question the reliability of his memoirs which may well be presented in a
self-promoting manner Gorbachevrsquos actions in this period lend credence to his claim For example
the easy removal of military figures from power ldquohellipclearly show[s] that Soviet political leaders
[did] not instinctively agree with the priorities of the military establishmenthelliprdquo36
The Soviet
Premier was committed to reducing the grip of militarism over Soviet society and this was achieved
by delivering ldquohellipa series of deliberate symbolic slights of high commandrdquo37
Behind his desire to thaw the Cold War lay Gorbachevrsquos goal to demilitarise the Soviet Union
both economically and politically As Anatoly Chernayaev personal advisor on foreign affairs to
Gorbachev recalls
ldquo[It was] an imperative for Gorbachev that we had to put an end to the Cold War that
we had to reduce our military budget significantly that we had to limit our military
industrial complex in some way For him it was absolutely clear that would have to
negotiate with President Reaganhelliprdquo38
The rationale for bias in Chernayaevrsquos testimony is limited His statement reveals the emphasis of
policy rather than any of his own potential prejudice for or against Gorbachev as a person or as a
leader Furthermore the removal of the uncooperative military leader Soviet Defence Minister
Sokolov in 1987 demonstrates this trend Thus Gorbachev in his attempts to reform the Soviet
Union sought to instigate a decline in the power of the military first politically and then physically
in order to reduce the economic burden that such a large force placed on the Soviet economy
Evidently there was a clear contrast in geopolitical aspirations between the two
Superpowers Reagan harboured ambitions to increase Americarsquos military power in order that she
36 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p21737 Colton amp Gustafson ldquoSoldiers and the Staterdquo p3238 Schweizer ldquoVictoryrdquo p238
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Nick Blackbourn 13
may take the initiative and end the Cold War Schweizer a contemporary political journalist in
Washington believes ldquoReagan had deeper ideological commitments and a strategic agenda that
went beyond real-politikhellipReagan not only spoke of the lsquoevil empirersquo and Marxism-Leninismrsquos
ending up on the lsquoash heap of historyrsquo he believed itrdquo39
The situation was quite the opposite in the
Soviet Union Gorbachev a pragmatist wanted hostilities to subside in order to allow the economic
and indeed political restructuring to permit the reduction of the military burden in the Soviet
Union His unilateral demobilisation of five hundred thousand Soviet troops announced at the UN
in 1988 shows his commitment to this direction in policy
The contrasting trends of militarization in America and demilitarization in the Soviet Union
would suggest a similar contrast in the influence of the military within each regime and this will
now be considered
Influence of the Defence Sectors in the USA and the USSR under Reagan and Gorbachev
The question of the influence of the military sector in Reaganrsquos and Gorbachevrsquos administrations
was an important one Reagan was much more open to the information presented to him from
within the military sphere than was Gorbachev Immediately following his inauguration Reagan had
authorised a thirty-three billion dollar increase in defence spending without even consulting the
military for their needs40 With this level of fiscal commitment to the American defence sector
Reagan was likely to utilise the information provided by his intelligence services Reaganrsquos
appointment of Bill Casey to head the CIA offers an insight as to the role of the Pentagon in the
Reagan administration
39 Ibid p17140 Garthoff ldquoThe Great Transitionrdquo p33
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Nick Blackbourn 14
Prior to his acceptance of position Casey demanded an office in the White House and his
inclusion in policy discussion Reagan accepted
ldquoCasey demanded an office in the White House complex He wanted easy access to
White House personal and the president not exile in Langley In politics as in
commercial real estate location is everything He could drop by the Oval Office and
informally influence policyrdquo41
The CIA chief now had direct access to the president He presented raw data on the Soviet
economy and defence-spending patterns were regularly passed onto the president Reagan was
guided towards lsquoshockingrsquo statistics on Soviet military spending which required urgent US
attention These reports Reagan said led him to muse that ldquohellipsomeone in the Kremlin had to
realize [sic] that in arming themselves to the teeth they were aggravating the desperate economic
problems in the Soviet Unionhelliprdquo42
However one must question whether these reports actually lead
to this conclusion or whether they simply corroborated the presidentrsquos own view Did the CIA
provide information that helped determine Americarsquos spending policies under Reagan or did it
simply justify policies Reagan had already chosen prior to Office It appears that rather than
assisting the formulation of policy directly information from the intelligence community was used
because it ldquohellipproved useful in supporting the US defence builduphelliprdquo43
Ronald Reaganrsquos
lsquocrusadingrsquo attitude towards ending communism meant that he leant much credence to CIA findings
when it supported his anti-Soviet Union view His intelligence budget increase of thirteen percent in
1981 perhaps ensured Americarsquos defence analyst community to follow Reaganrsquos own hard-line
view of the Soviet Union lest they politically weaken the hand that had increased their funding 44
41 Schweizer ldquoVictoryrdquo p242 Reagan ldquo An American Liferdquo p26843 Firth amp Noren ldquoSoviet Defence Spendingrdquo p8744 Schweizer ldquoVictoryrdquo p62
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Nick Blackbourn 15
Firth and Noren dispute this accusation contending that Soviet defence spending estimations were
ldquohellipnever cooked for political purposesrdquo45
However Firth and Noren were themselves part of the
CIA team that created such data and as such are unlikely to slight their own professional integrity
As Freedman recognises it is important to consider that Estimators do not work in ivory towers
but in a community with its own political structure They find themselves amongst colleagues who
share a particular adversary image and come perhaps subconsciously to adopt this image as their
own46
Intelligence integrity aside Reagan selectively utilised the information provided by his
military advisors Facts and figures presented to him particularly by the CIA were an important
tool in policy justification Schweizer argues that ldquo[Casey] was a key figure in the emerging United
States foreign policyhelliphis effect on policy is hard to underestimaterdquo47 However when CIA
information did not lend credence to Reaganrsquos own worldview it was disregarded The influence of
the military over Reagan is questionable its importance in the justification of policy rather than its
determination is not The stature if not the influence of the military in American politics grew
during the 1980rsquos
There could be no greater contrast to this trend of the increasing importance of the military
in politics than Gorbachevrsquos Premiership in the Soviet Union from 1985 Gorbachev was the first
Premier to have achieved his position without association with the military sector in his political
career For the first time in the history of the Soviet Union no serving military official sat in the
Politburo The reason for historian Galeotti was that ldquo[Gorbachev]helliplacked patience with his
generals and soon realized [sic] that he would have to rely on outmanoeuvring rather than
45 Firth amp Noren ldquoSoviet Defence Spendingrdquo p746 Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1977) p18547 Schweizer ldquoVictoryrdquo p14
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Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
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Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3445
Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1045
Nick Blackbourn 9
anti-nuclear streak in Gorbachevrsquos thinkingrdquo25 The Soviet Premier was forced into demilitarisation
by the economic straitjacket the Soviet Union found itself in but it was a measure he was more than
happy to pursue in his attempts to attain a lsquohuman facersquo for Socialism26
Aside from a shared distain for nuclear weapons we can see a marked contrast in how the
two leaders viewed the world and their position within it Reagan wanted a final victory whereas
Gorbachev hoped to back down and alleviate Cold War tension to provide breathing space for
structural reforms to take effect We now turn to how these views were manifested in the two
leadersrsquo military objectives and outcomes
The Military Objectives of President Reagan and Premier Gorbachev
Reagan wanted to escalate and lsquowinrsquo the Cold War and thus proceeded to practise confrontation in
foreign policy backed by increased arms spending Reagan stated as late as 1986 that
ldquohellipthe threat from Soviet forces conventional and strategic from the Soviet drive for
domination from the increase in espionage and state terror remains great This is reality
Closing our eyes will not make reality disappearrdquo27
In a tongue-in-cheek address on August 11 1984 he quipped ldquoIrsquom pleased to tell you today
thathellipbombing [of Russia] begins in five minutesrdquo28 Albeit a joke the address shows the hostile
mentality of the president To defeat the Soviet Union even without a lsquohotrsquo war military strength
was vital Building military strength was a signal of intent It provided an increased capability of
25 Reagan ldquoAn American Liferdquo p71026 Kotkin ldquo Armageddon Averted rdquo p5727 Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4 1986rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed130407]28 Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
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Nick Blackbourn 10
military action and also presented an economic challenge to Soviet Union to maintain parity (and
later as doctrine altered sufficiency) Creating strong Armed Forces was obviously a military
decision but the impact on the USSR was perhaps most importantly economic and Reagan was
well aware William Clark Reaganrsquos National Security Advisor between 1982 and 1983 explains
that
ldquoRonald Reagan wanted a complementary relationship between the US military
builduphellipand economic security policies directed at MoscowhellipFrankly our intention
was to divert priority Soviet resources to meeting future US capabilities beyond their
grasp and to persuade Moscow that they would not prevail in a toe-to-toe technological
competitionrdquo29
These may well be the words of a man attempting to cement his own contribution to the downfall of
the Soviet Union but his summary of the intentions of the Reagan build-up are corroborated by
Soviet Marshal Ogarkov is his book lsquoAlways in Readiness to Defend the Fatherlandrsquo in which he
highlights his own concerns over the pace of American technology30
Aside from his desire for freedom to ldquohelliptranscend communismhelliprdquo Reaganrsquos goal was to
restore American national pride following the negative reaction to the Vietnam years and the
apparent successes of communism in the 1970rsquos such as the recognition of Soviet dominated
Eastern Europe after the Helsinki Accords on August 1st 1975 and the advancement of
Communism in Latin America throughout the decade 31 One way Reagan sought to achieve this
29 Schweizer ldquoVictoryrdquo p13230 Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982) see also Weickhardt G ldquoTheWorld According To Ogarkovrdquo in ldquo International Security 8rdquo (Spring 1984) pp182-531 Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 17 1981rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed130407]
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Nick Blackbourn 11
goal was to shake-up the American military and restore its prestige in society in addition to
strengthening its physical power
ldquohellipthere were many problems facing our nation the tragic neglect of our military
establishment high unemployment and an ailing economy the continuing expansion of
communism abroadhellipBut to me none was more serious than the fact America had lost
faith in itselfrdquo32 ldquoI told the Joint Chiefs of Staff that I wanted to make our men and
women proud to wear their uniforms againrdquo33
For Reagan the military held an important position within American society and as such he actively
sought to improve the power and standing of the Armed Forces In his opinion a military revival
would spearhead a spiritual revival34
The strengthening of the defence sector was in many ways
independent of the confrontational foreign policy that was outlined in NSDD seventy-five in its
own right the president wanted America to be lsquoproudrsquo once again Thus the build-up of US armed
forces was a keystone of domestic policy as well as being a vital component of foreign policy
The same was not true in the Soviet Union Gorbachev was not as sympathetic to military
concerns as previous Soviet leaders his priorities clearly lay away from the defence sector and he
sought to remove this hitherto ubiquitous bias within the Soviet system Gorbachev referred to a
meeting where
ldquoDmitry Fedorovich [Soviet Defence Minister 1976 - 1984] remarked casually that
he was fully aware that lsquodefence and breadrsquo were the key issues I corrected this
statement to me lsquobread and defencersquo was the right order of prioritiesrdquo35
32 Reagan ldquoAn American Liferdquo p21933 Ibid p23534 Ibid p21935 Gorbachev ldquoMemoirsrdquo p136
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Nick Blackbourn 12
Though we can question the reliability of his memoirs which may well be presented in a
self-promoting manner Gorbachevrsquos actions in this period lend credence to his claim For example
the easy removal of military figures from power ldquohellipclearly show[s] that Soviet political leaders
[did] not instinctively agree with the priorities of the military establishmenthelliprdquo36
The Soviet
Premier was committed to reducing the grip of militarism over Soviet society and this was achieved
by delivering ldquohellipa series of deliberate symbolic slights of high commandrdquo37
Behind his desire to thaw the Cold War lay Gorbachevrsquos goal to demilitarise the Soviet Union
both economically and politically As Anatoly Chernayaev personal advisor on foreign affairs to
Gorbachev recalls
ldquo[It was] an imperative for Gorbachev that we had to put an end to the Cold War that
we had to reduce our military budget significantly that we had to limit our military
industrial complex in some way For him it was absolutely clear that would have to
negotiate with President Reaganhelliprdquo38
The rationale for bias in Chernayaevrsquos testimony is limited His statement reveals the emphasis of
policy rather than any of his own potential prejudice for or against Gorbachev as a person or as a
leader Furthermore the removal of the uncooperative military leader Soviet Defence Minister
Sokolov in 1987 demonstrates this trend Thus Gorbachev in his attempts to reform the Soviet
Union sought to instigate a decline in the power of the military first politically and then physically
in order to reduce the economic burden that such a large force placed on the Soviet economy
Evidently there was a clear contrast in geopolitical aspirations between the two
Superpowers Reagan harboured ambitions to increase Americarsquos military power in order that she
36 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p21737 Colton amp Gustafson ldquoSoldiers and the Staterdquo p3238 Schweizer ldquoVictoryrdquo p238
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Nick Blackbourn 13
may take the initiative and end the Cold War Schweizer a contemporary political journalist in
Washington believes ldquoReagan had deeper ideological commitments and a strategic agenda that
went beyond real-politikhellipReagan not only spoke of the lsquoevil empirersquo and Marxism-Leninismrsquos
ending up on the lsquoash heap of historyrsquo he believed itrdquo39
The situation was quite the opposite in the
Soviet Union Gorbachev a pragmatist wanted hostilities to subside in order to allow the economic
and indeed political restructuring to permit the reduction of the military burden in the Soviet
Union His unilateral demobilisation of five hundred thousand Soviet troops announced at the UN
in 1988 shows his commitment to this direction in policy
The contrasting trends of militarization in America and demilitarization in the Soviet Union
would suggest a similar contrast in the influence of the military within each regime and this will
now be considered
Influence of the Defence Sectors in the USA and the USSR under Reagan and Gorbachev
The question of the influence of the military sector in Reaganrsquos and Gorbachevrsquos administrations
was an important one Reagan was much more open to the information presented to him from
within the military sphere than was Gorbachev Immediately following his inauguration Reagan had
authorised a thirty-three billion dollar increase in defence spending without even consulting the
military for their needs40 With this level of fiscal commitment to the American defence sector
Reagan was likely to utilise the information provided by his intelligence services Reaganrsquos
appointment of Bill Casey to head the CIA offers an insight as to the role of the Pentagon in the
Reagan administration
39 Ibid p17140 Garthoff ldquoThe Great Transitionrdquo p33
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Nick Blackbourn 14
Prior to his acceptance of position Casey demanded an office in the White House and his
inclusion in policy discussion Reagan accepted
ldquoCasey demanded an office in the White House complex He wanted easy access to
White House personal and the president not exile in Langley In politics as in
commercial real estate location is everything He could drop by the Oval Office and
informally influence policyrdquo41
The CIA chief now had direct access to the president He presented raw data on the Soviet
economy and defence-spending patterns were regularly passed onto the president Reagan was
guided towards lsquoshockingrsquo statistics on Soviet military spending which required urgent US
attention These reports Reagan said led him to muse that ldquohellipsomeone in the Kremlin had to
realize [sic] that in arming themselves to the teeth they were aggravating the desperate economic
problems in the Soviet Unionhelliprdquo42
However one must question whether these reports actually lead
to this conclusion or whether they simply corroborated the presidentrsquos own view Did the CIA
provide information that helped determine Americarsquos spending policies under Reagan or did it
simply justify policies Reagan had already chosen prior to Office It appears that rather than
assisting the formulation of policy directly information from the intelligence community was used
because it ldquohellipproved useful in supporting the US defence builduphelliprdquo43
Ronald Reaganrsquos
lsquocrusadingrsquo attitude towards ending communism meant that he leant much credence to CIA findings
when it supported his anti-Soviet Union view His intelligence budget increase of thirteen percent in
1981 perhaps ensured Americarsquos defence analyst community to follow Reaganrsquos own hard-line
view of the Soviet Union lest they politically weaken the hand that had increased their funding 44
41 Schweizer ldquoVictoryrdquo p242 Reagan ldquo An American Liferdquo p26843 Firth amp Noren ldquoSoviet Defence Spendingrdquo p8744 Schweizer ldquoVictoryrdquo p62
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Nick Blackbourn 15
Firth and Noren dispute this accusation contending that Soviet defence spending estimations were
ldquohellipnever cooked for political purposesrdquo45
However Firth and Noren were themselves part of the
CIA team that created such data and as such are unlikely to slight their own professional integrity
As Freedman recognises it is important to consider that Estimators do not work in ivory towers
but in a community with its own political structure They find themselves amongst colleagues who
share a particular adversary image and come perhaps subconsciously to adopt this image as their
own46
Intelligence integrity aside Reagan selectively utilised the information provided by his
military advisors Facts and figures presented to him particularly by the CIA were an important
tool in policy justification Schweizer argues that ldquo[Casey] was a key figure in the emerging United
States foreign policyhelliphis effect on policy is hard to underestimaterdquo47 However when CIA
information did not lend credence to Reaganrsquos own worldview it was disregarded The influence of
the military over Reagan is questionable its importance in the justification of policy rather than its
determination is not The stature if not the influence of the military in American politics grew
during the 1980rsquos
There could be no greater contrast to this trend of the increasing importance of the military
in politics than Gorbachevrsquos Premiership in the Soviet Union from 1985 Gorbachev was the first
Premier to have achieved his position without association with the military sector in his political
career For the first time in the history of the Soviet Union no serving military official sat in the
Politburo The reason for historian Galeotti was that ldquo[Gorbachev]helliplacked patience with his
generals and soon realized [sic] that he would have to rely on outmanoeuvring rather than
45 Firth amp Noren ldquoSoviet Defence Spendingrdquo p746 Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1977) p18547 Schweizer ldquoVictoryrdquo p14
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Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
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Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
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Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
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Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
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Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1145
Nick Blackbourn 10
military action and also presented an economic challenge to Soviet Union to maintain parity (and
later as doctrine altered sufficiency) Creating strong Armed Forces was obviously a military
decision but the impact on the USSR was perhaps most importantly economic and Reagan was
well aware William Clark Reaganrsquos National Security Advisor between 1982 and 1983 explains
that
ldquoRonald Reagan wanted a complementary relationship between the US military
builduphellipand economic security policies directed at MoscowhellipFrankly our intention
was to divert priority Soviet resources to meeting future US capabilities beyond their
grasp and to persuade Moscow that they would not prevail in a toe-to-toe technological
competitionrdquo29
These may well be the words of a man attempting to cement his own contribution to the downfall of
the Soviet Union but his summary of the intentions of the Reagan build-up are corroborated by
Soviet Marshal Ogarkov is his book lsquoAlways in Readiness to Defend the Fatherlandrsquo in which he
highlights his own concerns over the pace of American technology30
Aside from his desire for freedom to ldquohelliptranscend communismhelliprdquo Reaganrsquos goal was to
restore American national pride following the negative reaction to the Vietnam years and the
apparent successes of communism in the 1970rsquos such as the recognition of Soviet dominated
Eastern Europe after the Helsinki Accords on August 1st 1975 and the advancement of
Communism in Latin America throughout the decade 31 One way Reagan sought to achieve this
29 Schweizer ldquoVictoryrdquo p13230 Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982) see also Weickhardt G ldquoTheWorld According To Ogarkovrdquo in ldquo International Security 8rdquo (Spring 1984) pp182-531 Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 17 1981rdquo ldquoThe Ronald
Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1245
Nick Blackbourn 11
goal was to shake-up the American military and restore its prestige in society in addition to
strengthening its physical power
ldquohellipthere were many problems facing our nation the tragic neglect of our military
establishment high unemployment and an ailing economy the continuing expansion of
communism abroadhellipBut to me none was more serious than the fact America had lost
faith in itselfrdquo32 ldquoI told the Joint Chiefs of Staff that I wanted to make our men and
women proud to wear their uniforms againrdquo33
For Reagan the military held an important position within American society and as such he actively
sought to improve the power and standing of the Armed Forces In his opinion a military revival
would spearhead a spiritual revival34
The strengthening of the defence sector was in many ways
independent of the confrontational foreign policy that was outlined in NSDD seventy-five in its
own right the president wanted America to be lsquoproudrsquo once again Thus the build-up of US armed
forces was a keystone of domestic policy as well as being a vital component of foreign policy
The same was not true in the Soviet Union Gorbachev was not as sympathetic to military
concerns as previous Soviet leaders his priorities clearly lay away from the defence sector and he
sought to remove this hitherto ubiquitous bias within the Soviet system Gorbachev referred to a
meeting where
ldquoDmitry Fedorovich [Soviet Defence Minister 1976 - 1984] remarked casually that
he was fully aware that lsquodefence and breadrsquo were the key issues I corrected this
statement to me lsquobread and defencersquo was the right order of prioritiesrdquo35
32 Reagan ldquoAn American Liferdquo p21933 Ibid p23534 Ibid p21935 Gorbachev ldquoMemoirsrdquo p136
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Nick Blackbourn 12
Though we can question the reliability of his memoirs which may well be presented in a
self-promoting manner Gorbachevrsquos actions in this period lend credence to his claim For example
the easy removal of military figures from power ldquohellipclearly show[s] that Soviet political leaders
[did] not instinctively agree with the priorities of the military establishmenthelliprdquo36
The Soviet
Premier was committed to reducing the grip of militarism over Soviet society and this was achieved
by delivering ldquohellipa series of deliberate symbolic slights of high commandrdquo37
Behind his desire to thaw the Cold War lay Gorbachevrsquos goal to demilitarise the Soviet Union
both economically and politically As Anatoly Chernayaev personal advisor on foreign affairs to
Gorbachev recalls
ldquo[It was] an imperative for Gorbachev that we had to put an end to the Cold War that
we had to reduce our military budget significantly that we had to limit our military
industrial complex in some way For him it was absolutely clear that would have to
negotiate with President Reaganhelliprdquo38
The rationale for bias in Chernayaevrsquos testimony is limited His statement reveals the emphasis of
policy rather than any of his own potential prejudice for or against Gorbachev as a person or as a
leader Furthermore the removal of the uncooperative military leader Soviet Defence Minister
Sokolov in 1987 demonstrates this trend Thus Gorbachev in his attempts to reform the Soviet
Union sought to instigate a decline in the power of the military first politically and then physically
in order to reduce the economic burden that such a large force placed on the Soviet economy
Evidently there was a clear contrast in geopolitical aspirations between the two
Superpowers Reagan harboured ambitions to increase Americarsquos military power in order that she
36 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p21737 Colton amp Gustafson ldquoSoldiers and the Staterdquo p3238 Schweizer ldquoVictoryrdquo p238
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Nick Blackbourn 13
may take the initiative and end the Cold War Schweizer a contemporary political journalist in
Washington believes ldquoReagan had deeper ideological commitments and a strategic agenda that
went beyond real-politikhellipReagan not only spoke of the lsquoevil empirersquo and Marxism-Leninismrsquos
ending up on the lsquoash heap of historyrsquo he believed itrdquo39
The situation was quite the opposite in the
Soviet Union Gorbachev a pragmatist wanted hostilities to subside in order to allow the economic
and indeed political restructuring to permit the reduction of the military burden in the Soviet
Union His unilateral demobilisation of five hundred thousand Soviet troops announced at the UN
in 1988 shows his commitment to this direction in policy
The contrasting trends of militarization in America and demilitarization in the Soviet Union
would suggest a similar contrast in the influence of the military within each regime and this will
now be considered
Influence of the Defence Sectors in the USA and the USSR under Reagan and Gorbachev
The question of the influence of the military sector in Reaganrsquos and Gorbachevrsquos administrations
was an important one Reagan was much more open to the information presented to him from
within the military sphere than was Gorbachev Immediately following his inauguration Reagan had
authorised a thirty-three billion dollar increase in defence spending without even consulting the
military for their needs40 With this level of fiscal commitment to the American defence sector
Reagan was likely to utilise the information provided by his intelligence services Reaganrsquos
appointment of Bill Casey to head the CIA offers an insight as to the role of the Pentagon in the
Reagan administration
39 Ibid p17140 Garthoff ldquoThe Great Transitionrdquo p33
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Nick Blackbourn 14
Prior to his acceptance of position Casey demanded an office in the White House and his
inclusion in policy discussion Reagan accepted
ldquoCasey demanded an office in the White House complex He wanted easy access to
White House personal and the president not exile in Langley In politics as in
commercial real estate location is everything He could drop by the Oval Office and
informally influence policyrdquo41
The CIA chief now had direct access to the president He presented raw data on the Soviet
economy and defence-spending patterns were regularly passed onto the president Reagan was
guided towards lsquoshockingrsquo statistics on Soviet military spending which required urgent US
attention These reports Reagan said led him to muse that ldquohellipsomeone in the Kremlin had to
realize [sic] that in arming themselves to the teeth they were aggravating the desperate economic
problems in the Soviet Unionhelliprdquo42
However one must question whether these reports actually lead
to this conclusion or whether they simply corroborated the presidentrsquos own view Did the CIA
provide information that helped determine Americarsquos spending policies under Reagan or did it
simply justify policies Reagan had already chosen prior to Office It appears that rather than
assisting the formulation of policy directly information from the intelligence community was used
because it ldquohellipproved useful in supporting the US defence builduphelliprdquo43
Ronald Reaganrsquos
lsquocrusadingrsquo attitude towards ending communism meant that he leant much credence to CIA findings
when it supported his anti-Soviet Union view His intelligence budget increase of thirteen percent in
1981 perhaps ensured Americarsquos defence analyst community to follow Reaganrsquos own hard-line
view of the Soviet Union lest they politically weaken the hand that had increased their funding 44
41 Schweizer ldquoVictoryrdquo p242 Reagan ldquo An American Liferdquo p26843 Firth amp Noren ldquoSoviet Defence Spendingrdquo p8744 Schweizer ldquoVictoryrdquo p62
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Nick Blackbourn 15
Firth and Noren dispute this accusation contending that Soviet defence spending estimations were
ldquohellipnever cooked for political purposesrdquo45
However Firth and Noren were themselves part of the
CIA team that created such data and as such are unlikely to slight their own professional integrity
As Freedman recognises it is important to consider that Estimators do not work in ivory towers
but in a community with its own political structure They find themselves amongst colleagues who
share a particular adversary image and come perhaps subconsciously to adopt this image as their
own46
Intelligence integrity aside Reagan selectively utilised the information provided by his
military advisors Facts and figures presented to him particularly by the CIA were an important
tool in policy justification Schweizer argues that ldquo[Casey] was a key figure in the emerging United
States foreign policyhelliphis effect on policy is hard to underestimaterdquo47 However when CIA
information did not lend credence to Reaganrsquos own worldview it was disregarded The influence of
the military over Reagan is questionable its importance in the justification of policy rather than its
determination is not The stature if not the influence of the military in American politics grew
during the 1980rsquos
There could be no greater contrast to this trend of the increasing importance of the military
in politics than Gorbachevrsquos Premiership in the Soviet Union from 1985 Gorbachev was the first
Premier to have achieved his position without association with the military sector in his political
career For the first time in the history of the Soviet Union no serving military official sat in the
Politburo The reason for historian Galeotti was that ldquo[Gorbachev]helliplacked patience with his
generals and soon realized [sic] that he would have to rely on outmanoeuvring rather than
45 Firth amp Noren ldquoSoviet Defence Spendingrdquo p746 Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1977) p18547 Schweizer ldquoVictoryrdquo p14
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Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
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Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3945
Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1245
Nick Blackbourn 11
goal was to shake-up the American military and restore its prestige in society in addition to
strengthening its physical power
ldquohellipthere were many problems facing our nation the tragic neglect of our military
establishment high unemployment and an ailing economy the continuing expansion of
communism abroadhellipBut to me none was more serious than the fact America had lost
faith in itselfrdquo32 ldquoI told the Joint Chiefs of Staff that I wanted to make our men and
women proud to wear their uniforms againrdquo33
For Reagan the military held an important position within American society and as such he actively
sought to improve the power and standing of the Armed Forces In his opinion a military revival
would spearhead a spiritual revival34
The strengthening of the defence sector was in many ways
independent of the confrontational foreign policy that was outlined in NSDD seventy-five in its
own right the president wanted America to be lsquoproudrsquo once again Thus the build-up of US armed
forces was a keystone of domestic policy as well as being a vital component of foreign policy
The same was not true in the Soviet Union Gorbachev was not as sympathetic to military
concerns as previous Soviet leaders his priorities clearly lay away from the defence sector and he
sought to remove this hitherto ubiquitous bias within the Soviet system Gorbachev referred to a
meeting where
ldquoDmitry Fedorovich [Soviet Defence Minister 1976 - 1984] remarked casually that
he was fully aware that lsquodefence and breadrsquo were the key issues I corrected this
statement to me lsquobread and defencersquo was the right order of prioritiesrdquo35
32 Reagan ldquoAn American Liferdquo p21933 Ibid p23534 Ibid p21935 Gorbachev ldquoMemoirsrdquo p136
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1345
Nick Blackbourn 12
Though we can question the reliability of his memoirs which may well be presented in a
self-promoting manner Gorbachevrsquos actions in this period lend credence to his claim For example
the easy removal of military figures from power ldquohellipclearly show[s] that Soviet political leaders
[did] not instinctively agree with the priorities of the military establishmenthelliprdquo36
The Soviet
Premier was committed to reducing the grip of militarism over Soviet society and this was achieved
by delivering ldquohellipa series of deliberate symbolic slights of high commandrdquo37
Behind his desire to thaw the Cold War lay Gorbachevrsquos goal to demilitarise the Soviet Union
both economically and politically As Anatoly Chernayaev personal advisor on foreign affairs to
Gorbachev recalls
ldquo[It was] an imperative for Gorbachev that we had to put an end to the Cold War that
we had to reduce our military budget significantly that we had to limit our military
industrial complex in some way For him it was absolutely clear that would have to
negotiate with President Reaganhelliprdquo38
The rationale for bias in Chernayaevrsquos testimony is limited His statement reveals the emphasis of
policy rather than any of his own potential prejudice for or against Gorbachev as a person or as a
leader Furthermore the removal of the uncooperative military leader Soviet Defence Minister
Sokolov in 1987 demonstrates this trend Thus Gorbachev in his attempts to reform the Soviet
Union sought to instigate a decline in the power of the military first politically and then physically
in order to reduce the economic burden that such a large force placed on the Soviet economy
Evidently there was a clear contrast in geopolitical aspirations between the two
Superpowers Reagan harboured ambitions to increase Americarsquos military power in order that she
36 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p21737 Colton amp Gustafson ldquoSoldiers and the Staterdquo p3238 Schweizer ldquoVictoryrdquo p238
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1445
Nick Blackbourn 13
may take the initiative and end the Cold War Schweizer a contemporary political journalist in
Washington believes ldquoReagan had deeper ideological commitments and a strategic agenda that
went beyond real-politikhellipReagan not only spoke of the lsquoevil empirersquo and Marxism-Leninismrsquos
ending up on the lsquoash heap of historyrsquo he believed itrdquo39
The situation was quite the opposite in the
Soviet Union Gorbachev a pragmatist wanted hostilities to subside in order to allow the economic
and indeed political restructuring to permit the reduction of the military burden in the Soviet
Union His unilateral demobilisation of five hundred thousand Soviet troops announced at the UN
in 1988 shows his commitment to this direction in policy
The contrasting trends of militarization in America and demilitarization in the Soviet Union
would suggest a similar contrast in the influence of the military within each regime and this will
now be considered
Influence of the Defence Sectors in the USA and the USSR under Reagan and Gorbachev
The question of the influence of the military sector in Reaganrsquos and Gorbachevrsquos administrations
was an important one Reagan was much more open to the information presented to him from
within the military sphere than was Gorbachev Immediately following his inauguration Reagan had
authorised a thirty-three billion dollar increase in defence spending without even consulting the
military for their needs40 With this level of fiscal commitment to the American defence sector
Reagan was likely to utilise the information provided by his intelligence services Reaganrsquos
appointment of Bill Casey to head the CIA offers an insight as to the role of the Pentagon in the
Reagan administration
39 Ibid p17140 Garthoff ldquoThe Great Transitionrdquo p33
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Nick Blackbourn 14
Prior to his acceptance of position Casey demanded an office in the White House and his
inclusion in policy discussion Reagan accepted
ldquoCasey demanded an office in the White House complex He wanted easy access to
White House personal and the president not exile in Langley In politics as in
commercial real estate location is everything He could drop by the Oval Office and
informally influence policyrdquo41
The CIA chief now had direct access to the president He presented raw data on the Soviet
economy and defence-spending patterns were regularly passed onto the president Reagan was
guided towards lsquoshockingrsquo statistics on Soviet military spending which required urgent US
attention These reports Reagan said led him to muse that ldquohellipsomeone in the Kremlin had to
realize [sic] that in arming themselves to the teeth they were aggravating the desperate economic
problems in the Soviet Unionhelliprdquo42
However one must question whether these reports actually lead
to this conclusion or whether they simply corroborated the presidentrsquos own view Did the CIA
provide information that helped determine Americarsquos spending policies under Reagan or did it
simply justify policies Reagan had already chosen prior to Office It appears that rather than
assisting the formulation of policy directly information from the intelligence community was used
because it ldquohellipproved useful in supporting the US defence builduphelliprdquo43
Ronald Reaganrsquos
lsquocrusadingrsquo attitude towards ending communism meant that he leant much credence to CIA findings
when it supported his anti-Soviet Union view His intelligence budget increase of thirteen percent in
1981 perhaps ensured Americarsquos defence analyst community to follow Reaganrsquos own hard-line
view of the Soviet Union lest they politically weaken the hand that had increased their funding 44
41 Schweizer ldquoVictoryrdquo p242 Reagan ldquo An American Liferdquo p26843 Firth amp Noren ldquoSoviet Defence Spendingrdquo p8744 Schweizer ldquoVictoryrdquo p62
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Nick Blackbourn 15
Firth and Noren dispute this accusation contending that Soviet defence spending estimations were
ldquohellipnever cooked for political purposesrdquo45
However Firth and Noren were themselves part of the
CIA team that created such data and as such are unlikely to slight their own professional integrity
As Freedman recognises it is important to consider that Estimators do not work in ivory towers
but in a community with its own political structure They find themselves amongst colleagues who
share a particular adversary image and come perhaps subconsciously to adopt this image as their
own46
Intelligence integrity aside Reagan selectively utilised the information provided by his
military advisors Facts and figures presented to him particularly by the CIA were an important
tool in policy justification Schweizer argues that ldquo[Casey] was a key figure in the emerging United
States foreign policyhelliphis effect on policy is hard to underestimaterdquo47 However when CIA
information did not lend credence to Reaganrsquos own worldview it was disregarded The influence of
the military over Reagan is questionable its importance in the justification of policy rather than its
determination is not The stature if not the influence of the military in American politics grew
during the 1980rsquos
There could be no greater contrast to this trend of the increasing importance of the military
in politics than Gorbachevrsquos Premiership in the Soviet Union from 1985 Gorbachev was the first
Premier to have achieved his position without association with the military sector in his political
career For the first time in the history of the Soviet Union no serving military official sat in the
Politburo The reason for historian Galeotti was that ldquo[Gorbachev]helliplacked patience with his
generals and soon realized [sic] that he would have to rely on outmanoeuvring rather than
45 Firth amp Noren ldquoSoviet Defence Spendingrdquo p746 Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1977) p18547 Schweizer ldquoVictoryrdquo p14
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Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3945
Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1345
Nick Blackbourn 12
Though we can question the reliability of his memoirs which may well be presented in a
self-promoting manner Gorbachevrsquos actions in this period lend credence to his claim For example
the easy removal of military figures from power ldquohellipclearly show[s] that Soviet political leaders
[did] not instinctively agree with the priorities of the military establishmenthelliprdquo36
The Soviet
Premier was committed to reducing the grip of militarism over Soviet society and this was achieved
by delivering ldquohellipa series of deliberate symbolic slights of high commandrdquo37
Behind his desire to thaw the Cold War lay Gorbachevrsquos goal to demilitarise the Soviet Union
both economically and politically As Anatoly Chernayaev personal advisor on foreign affairs to
Gorbachev recalls
ldquo[It was] an imperative for Gorbachev that we had to put an end to the Cold War that
we had to reduce our military budget significantly that we had to limit our military
industrial complex in some way For him it was absolutely clear that would have to
negotiate with President Reaganhelliprdquo38
The rationale for bias in Chernayaevrsquos testimony is limited His statement reveals the emphasis of
policy rather than any of his own potential prejudice for or against Gorbachev as a person or as a
leader Furthermore the removal of the uncooperative military leader Soviet Defence Minister
Sokolov in 1987 demonstrates this trend Thus Gorbachev in his attempts to reform the Soviet
Union sought to instigate a decline in the power of the military first politically and then physically
in order to reduce the economic burden that such a large force placed on the Soviet economy
Evidently there was a clear contrast in geopolitical aspirations between the two
Superpowers Reagan harboured ambitions to increase Americarsquos military power in order that she
36 Meyer S ldquoEconomic Constraints in Soviet Military Decision-Makingrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p21737 Colton amp Gustafson ldquoSoldiers and the Staterdquo p3238 Schweizer ldquoVictoryrdquo p238
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1445
Nick Blackbourn 13
may take the initiative and end the Cold War Schweizer a contemporary political journalist in
Washington believes ldquoReagan had deeper ideological commitments and a strategic agenda that
went beyond real-politikhellipReagan not only spoke of the lsquoevil empirersquo and Marxism-Leninismrsquos
ending up on the lsquoash heap of historyrsquo he believed itrdquo39
The situation was quite the opposite in the
Soviet Union Gorbachev a pragmatist wanted hostilities to subside in order to allow the economic
and indeed political restructuring to permit the reduction of the military burden in the Soviet
Union His unilateral demobilisation of five hundred thousand Soviet troops announced at the UN
in 1988 shows his commitment to this direction in policy
The contrasting trends of militarization in America and demilitarization in the Soviet Union
would suggest a similar contrast in the influence of the military within each regime and this will
now be considered
Influence of the Defence Sectors in the USA and the USSR under Reagan and Gorbachev
The question of the influence of the military sector in Reaganrsquos and Gorbachevrsquos administrations
was an important one Reagan was much more open to the information presented to him from
within the military sphere than was Gorbachev Immediately following his inauguration Reagan had
authorised a thirty-three billion dollar increase in defence spending without even consulting the
military for their needs40 With this level of fiscal commitment to the American defence sector
Reagan was likely to utilise the information provided by his intelligence services Reaganrsquos
appointment of Bill Casey to head the CIA offers an insight as to the role of the Pentagon in the
Reagan administration
39 Ibid p17140 Garthoff ldquoThe Great Transitionrdquo p33
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Nick Blackbourn 14
Prior to his acceptance of position Casey demanded an office in the White House and his
inclusion in policy discussion Reagan accepted
ldquoCasey demanded an office in the White House complex He wanted easy access to
White House personal and the president not exile in Langley In politics as in
commercial real estate location is everything He could drop by the Oval Office and
informally influence policyrdquo41
The CIA chief now had direct access to the president He presented raw data on the Soviet
economy and defence-spending patterns were regularly passed onto the president Reagan was
guided towards lsquoshockingrsquo statistics on Soviet military spending which required urgent US
attention These reports Reagan said led him to muse that ldquohellipsomeone in the Kremlin had to
realize [sic] that in arming themselves to the teeth they were aggravating the desperate economic
problems in the Soviet Unionhelliprdquo42
However one must question whether these reports actually lead
to this conclusion or whether they simply corroborated the presidentrsquos own view Did the CIA
provide information that helped determine Americarsquos spending policies under Reagan or did it
simply justify policies Reagan had already chosen prior to Office It appears that rather than
assisting the formulation of policy directly information from the intelligence community was used
because it ldquohellipproved useful in supporting the US defence builduphelliprdquo43
Ronald Reaganrsquos
lsquocrusadingrsquo attitude towards ending communism meant that he leant much credence to CIA findings
when it supported his anti-Soviet Union view His intelligence budget increase of thirteen percent in
1981 perhaps ensured Americarsquos defence analyst community to follow Reaganrsquos own hard-line
view of the Soviet Union lest they politically weaken the hand that had increased their funding 44
41 Schweizer ldquoVictoryrdquo p242 Reagan ldquo An American Liferdquo p26843 Firth amp Noren ldquoSoviet Defence Spendingrdquo p8744 Schweizer ldquoVictoryrdquo p62
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Nick Blackbourn 15
Firth and Noren dispute this accusation contending that Soviet defence spending estimations were
ldquohellipnever cooked for political purposesrdquo45
However Firth and Noren were themselves part of the
CIA team that created such data and as such are unlikely to slight their own professional integrity
As Freedman recognises it is important to consider that Estimators do not work in ivory towers
but in a community with its own political structure They find themselves amongst colleagues who
share a particular adversary image and come perhaps subconsciously to adopt this image as their
own46
Intelligence integrity aside Reagan selectively utilised the information provided by his
military advisors Facts and figures presented to him particularly by the CIA were an important
tool in policy justification Schweizer argues that ldquo[Casey] was a key figure in the emerging United
States foreign policyhelliphis effect on policy is hard to underestimaterdquo47 However when CIA
information did not lend credence to Reaganrsquos own worldview it was disregarded The influence of
the military over Reagan is questionable its importance in the justification of policy rather than its
determination is not The stature if not the influence of the military in American politics grew
during the 1980rsquos
There could be no greater contrast to this trend of the increasing importance of the military
in politics than Gorbachevrsquos Premiership in the Soviet Union from 1985 Gorbachev was the first
Premier to have achieved his position without association with the military sector in his political
career For the first time in the history of the Soviet Union no serving military official sat in the
Politburo The reason for historian Galeotti was that ldquo[Gorbachev]helliplacked patience with his
generals and soon realized [sic] that he would have to rely on outmanoeuvring rather than
45 Firth amp Noren ldquoSoviet Defence Spendingrdquo p746 Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1977) p18547 Schweizer ldquoVictoryrdquo p14
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Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1945
Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1445
Nick Blackbourn 13
may take the initiative and end the Cold War Schweizer a contemporary political journalist in
Washington believes ldquoReagan had deeper ideological commitments and a strategic agenda that
went beyond real-politikhellipReagan not only spoke of the lsquoevil empirersquo and Marxism-Leninismrsquos
ending up on the lsquoash heap of historyrsquo he believed itrdquo39
The situation was quite the opposite in the
Soviet Union Gorbachev a pragmatist wanted hostilities to subside in order to allow the economic
and indeed political restructuring to permit the reduction of the military burden in the Soviet
Union His unilateral demobilisation of five hundred thousand Soviet troops announced at the UN
in 1988 shows his commitment to this direction in policy
The contrasting trends of militarization in America and demilitarization in the Soviet Union
would suggest a similar contrast in the influence of the military within each regime and this will
now be considered
Influence of the Defence Sectors in the USA and the USSR under Reagan and Gorbachev
The question of the influence of the military sector in Reaganrsquos and Gorbachevrsquos administrations
was an important one Reagan was much more open to the information presented to him from
within the military sphere than was Gorbachev Immediately following his inauguration Reagan had
authorised a thirty-three billion dollar increase in defence spending without even consulting the
military for their needs40 With this level of fiscal commitment to the American defence sector
Reagan was likely to utilise the information provided by his intelligence services Reaganrsquos
appointment of Bill Casey to head the CIA offers an insight as to the role of the Pentagon in the
Reagan administration
39 Ibid p17140 Garthoff ldquoThe Great Transitionrdquo p33
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Nick Blackbourn 14
Prior to his acceptance of position Casey demanded an office in the White House and his
inclusion in policy discussion Reagan accepted
ldquoCasey demanded an office in the White House complex He wanted easy access to
White House personal and the president not exile in Langley In politics as in
commercial real estate location is everything He could drop by the Oval Office and
informally influence policyrdquo41
The CIA chief now had direct access to the president He presented raw data on the Soviet
economy and defence-spending patterns were regularly passed onto the president Reagan was
guided towards lsquoshockingrsquo statistics on Soviet military spending which required urgent US
attention These reports Reagan said led him to muse that ldquohellipsomeone in the Kremlin had to
realize [sic] that in arming themselves to the teeth they were aggravating the desperate economic
problems in the Soviet Unionhelliprdquo42
However one must question whether these reports actually lead
to this conclusion or whether they simply corroborated the presidentrsquos own view Did the CIA
provide information that helped determine Americarsquos spending policies under Reagan or did it
simply justify policies Reagan had already chosen prior to Office It appears that rather than
assisting the formulation of policy directly information from the intelligence community was used
because it ldquohellipproved useful in supporting the US defence builduphelliprdquo43
Ronald Reaganrsquos
lsquocrusadingrsquo attitude towards ending communism meant that he leant much credence to CIA findings
when it supported his anti-Soviet Union view His intelligence budget increase of thirteen percent in
1981 perhaps ensured Americarsquos defence analyst community to follow Reaganrsquos own hard-line
view of the Soviet Union lest they politically weaken the hand that had increased their funding 44
41 Schweizer ldquoVictoryrdquo p242 Reagan ldquo An American Liferdquo p26843 Firth amp Noren ldquoSoviet Defence Spendingrdquo p8744 Schweizer ldquoVictoryrdquo p62
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1645
Nick Blackbourn 15
Firth and Noren dispute this accusation contending that Soviet defence spending estimations were
ldquohellipnever cooked for political purposesrdquo45
However Firth and Noren were themselves part of the
CIA team that created such data and as such are unlikely to slight their own professional integrity
As Freedman recognises it is important to consider that Estimators do not work in ivory towers
but in a community with its own political structure They find themselves amongst colleagues who
share a particular adversary image and come perhaps subconsciously to adopt this image as their
own46
Intelligence integrity aside Reagan selectively utilised the information provided by his
military advisors Facts and figures presented to him particularly by the CIA were an important
tool in policy justification Schweizer argues that ldquo[Casey] was a key figure in the emerging United
States foreign policyhelliphis effect on policy is hard to underestimaterdquo47 However when CIA
information did not lend credence to Reaganrsquos own worldview it was disregarded The influence of
the military over Reagan is questionable its importance in the justification of policy rather than its
determination is not The stature if not the influence of the military in American politics grew
during the 1980rsquos
There could be no greater contrast to this trend of the increasing importance of the military
in politics than Gorbachevrsquos Premiership in the Soviet Union from 1985 Gorbachev was the first
Premier to have achieved his position without association with the military sector in his political
career For the first time in the history of the Soviet Union no serving military official sat in the
Politburo The reason for historian Galeotti was that ldquo[Gorbachev]helliplacked patience with his
generals and soon realized [sic] that he would have to rely on outmanoeuvring rather than
45 Firth amp Noren ldquoSoviet Defence Spendingrdquo p746 Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1977) p18547 Schweizer ldquoVictoryrdquo p14
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Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1945
Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1545
Nick Blackbourn 14
Prior to his acceptance of position Casey demanded an office in the White House and his
inclusion in policy discussion Reagan accepted
ldquoCasey demanded an office in the White House complex He wanted easy access to
White House personal and the president not exile in Langley In politics as in
commercial real estate location is everything He could drop by the Oval Office and
informally influence policyrdquo41
The CIA chief now had direct access to the president He presented raw data on the Soviet
economy and defence-spending patterns were regularly passed onto the president Reagan was
guided towards lsquoshockingrsquo statistics on Soviet military spending which required urgent US
attention These reports Reagan said led him to muse that ldquohellipsomeone in the Kremlin had to
realize [sic] that in arming themselves to the teeth they were aggravating the desperate economic
problems in the Soviet Unionhelliprdquo42
However one must question whether these reports actually lead
to this conclusion or whether they simply corroborated the presidentrsquos own view Did the CIA
provide information that helped determine Americarsquos spending policies under Reagan or did it
simply justify policies Reagan had already chosen prior to Office It appears that rather than
assisting the formulation of policy directly information from the intelligence community was used
because it ldquohellipproved useful in supporting the US defence builduphelliprdquo43
Ronald Reaganrsquos
lsquocrusadingrsquo attitude towards ending communism meant that he leant much credence to CIA findings
when it supported his anti-Soviet Union view His intelligence budget increase of thirteen percent in
1981 perhaps ensured Americarsquos defence analyst community to follow Reaganrsquos own hard-line
view of the Soviet Union lest they politically weaken the hand that had increased their funding 44
41 Schweizer ldquoVictoryrdquo p242 Reagan ldquo An American Liferdquo p26843 Firth amp Noren ldquoSoviet Defence Spendingrdquo p8744 Schweizer ldquoVictoryrdquo p62
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1645
Nick Blackbourn 15
Firth and Noren dispute this accusation contending that Soviet defence spending estimations were
ldquohellipnever cooked for political purposesrdquo45
However Firth and Noren were themselves part of the
CIA team that created such data and as such are unlikely to slight their own professional integrity
As Freedman recognises it is important to consider that Estimators do not work in ivory towers
but in a community with its own political structure They find themselves amongst colleagues who
share a particular adversary image and come perhaps subconsciously to adopt this image as their
own46
Intelligence integrity aside Reagan selectively utilised the information provided by his
military advisors Facts and figures presented to him particularly by the CIA were an important
tool in policy justification Schweizer argues that ldquo[Casey] was a key figure in the emerging United
States foreign policyhelliphis effect on policy is hard to underestimaterdquo47 However when CIA
information did not lend credence to Reaganrsquos own worldview it was disregarded The influence of
the military over Reagan is questionable its importance in the justification of policy rather than its
determination is not The stature if not the influence of the military in American politics grew
during the 1980rsquos
There could be no greater contrast to this trend of the increasing importance of the military
in politics than Gorbachevrsquos Premiership in the Soviet Union from 1985 Gorbachev was the first
Premier to have achieved his position without association with the military sector in his political
career For the first time in the history of the Soviet Union no serving military official sat in the
Politburo The reason for historian Galeotti was that ldquo[Gorbachev]helliplacked patience with his
generals and soon realized [sic] that he would have to rely on outmanoeuvring rather than
45 Firth amp Noren ldquoSoviet Defence Spendingrdquo p746 Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1977) p18547 Schweizer ldquoVictoryrdquo p14
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Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
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Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
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Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1645
Nick Blackbourn 15
Firth and Noren dispute this accusation contending that Soviet defence spending estimations were
ldquohellipnever cooked for political purposesrdquo45
However Firth and Noren were themselves part of the
CIA team that created such data and as such are unlikely to slight their own professional integrity
As Freedman recognises it is important to consider that Estimators do not work in ivory towers
but in a community with its own political structure They find themselves amongst colleagues who
share a particular adversary image and come perhaps subconsciously to adopt this image as their
own46
Intelligence integrity aside Reagan selectively utilised the information provided by his
military advisors Facts and figures presented to him particularly by the CIA were an important
tool in policy justification Schweizer argues that ldquo[Casey] was a key figure in the emerging United
States foreign policyhelliphis effect on policy is hard to underestimaterdquo47 However when CIA
information did not lend credence to Reaganrsquos own worldview it was disregarded The influence of
the military over Reagan is questionable its importance in the justification of policy rather than its
determination is not The stature if not the influence of the military in American politics grew
during the 1980rsquos
There could be no greater contrast to this trend of the increasing importance of the military
in politics than Gorbachevrsquos Premiership in the Soviet Union from 1985 Gorbachev was the first
Premier to have achieved his position without association with the military sector in his political
career For the first time in the history of the Soviet Union no serving military official sat in the
Politburo The reason for historian Galeotti was that ldquo[Gorbachev]helliplacked patience with his
generals and soon realized [sic] that he would have to rely on outmanoeuvring rather than
45 Firth amp Noren ldquoSoviet Defence Spendingrdquo p746 Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1977) p18547 Schweizer ldquoVictoryrdquo p14
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1745
Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
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Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 2445
Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
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Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1745
Nick Blackbourn 16
persuading themrdquo48 The military under Gorbachev clearly were losing capacity to influence
decision-making in the Soviet Union Defence spending was cut by fourteen point two per cent and
weapons production declined nineteen point five per cent49
This move was part of Perestroika which sought to restructure the Soviet economy away
from the military50
Gorbachev made conscious efforts to scale down the problems emanating from
the military industrial complex51 Not only were military appointments by the Soviet Premier
lacking outspoken military commanders were removed from office Sergi Sokolov Minister of
Defence was relieved of duties in 198752
Gorbachev did not simply remove military influence from the Politburo in the form of
physical representation he also questioned the paper information and statistics that emanated from
the defence sector He had little faith in the relevance and accuracy of the data and recognised that
the climate of fear that had surrounded defence concerns had removed any form of accountability
from the defence procurement and spending procedure
ldquohellipnew policy undermined the psychology of confrontation that had developed during
the Cold War years and affected the interest of those who fed on it Proposed
reductions in military production meant a reduction in allocations subsidies and jobsrdquo53
Gorbachev was well aware he was operating against long established Soviet party line The
military-industrial complex in the Soviet Union had benefited a great number of people and as such
these beneficiaries had a vested interested in maintaining the status quo Gorbachev felt he could
48 Galeotti ldquoGorbachev and His Revolutionrdquo p6249 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p650 See MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC Brookings Institute 1991)51 See Checinski M ldquoThe Soviet War-Economy and the Conversion of the Arms Industryrdquo in Blank S amp Kipp J(Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press 1992) pp89-11452 For more on Gorbachevrsquos relations with the Soviet High Command see Herspring D ldquoThe Soviet High Command
1967 ndash 1989rdquo (Princeton Princeton University Press 1990) pp265-96 and also Green W amp Karasik T (Eds)ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press1990)53 Gorbachev ldquoMemoirsrdquo p238
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
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Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 2645
Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1845
Nick Blackbourn 17
not trust the statistics presented to him from this sphere He noted the inherent biases of the defence
sector ldquohellipalthough the defence ministry was well aware of the price the arms race exacted from the
country in all the years of my work in Moscow they never made any suggestions for cuts in
defence spendingrdquo54
It is clear that under Gorbachev the military in the Soviet Union witnessed a sharp decline in
influence and importance within the political and economic decision-making process Military
personnel were removed from the Politburo and conscious efforts were made to introduce
accountability and transparency in defence spending as part of lsquoglasnostrsquo Gorbachev implied that
he had little confidence in the reliability of the defence spending figures the secretive Defence
Council presented him that this was unacceptable and would be changed
Unsurprisingly given the differing aspirations for the military and the progression of the
Cold War the trend of military importance within government contrasted between the two
superpowers In America the military establishment had been neglected since McNamararsquos lsquosystem
analysisrsquo cost reduction methods in the 1960rsquos and even more so following the Vietnam withdrawal
in 197255 American armed forces would experience a revival in funding and consequently strength
from 1981 after Reaganrsquos election victory In the USSR the opposite was true as a vastly influential
defence sector had its importance in the political arena curbed by Gorbachev as he sought to
lsquoacceleratersquo and then lsquorestructurersquo the communist statersquos economy whose ailing condition was
becoming increasingly apparent
Summary
54 Ibid p40555 For details on McNamararsquos defence spending policies see Enthoven A amp Smith K ldquoHow Much is Enough
Shaping the Defense Program 1961-1969rdquo (New York Harper Row 1971)
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Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3345
Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 1945
Nick Blackbourn 18
Reaganrsquos military build-up resulted in the increasing importance of the defence sector in politics if
not for informing decision-making for justifying it to Congress This focus meant more funds for
intelligence services and this financial incentive coupled with a subconscious alignment with the
prevailing view of the administration meant that Reagan could use such information to justify his
anti-Soviet policies Gorbachev on the other hand was much less receptive to the military sector as
Soviet Premier He was aware of the unwarranted importance of the military in Soviet social
political and economic life and made a conscious effort to reverse this trend As a result the
importance of the military in Soviet governance markedly declined after Gorbachevrsquos ascension to
power
In turning towards the examination of the figures that the CIA and Soviet Defence Council
actually presented to their prospective leaders it is possible to further justify this conclusion
Chapter II ndash Soviet Defence Estimations Problems Impact and Relevance
So far this thesis has shown how the US administration and the government of the USSR in
the 1980s viewed the prospects of the Cold War the objectives they held for their own military
forces and consequently what importance the respective military and intelligence hierarchies held
over the leaderships of Ronald Reagan and Mikhail Gorbachev
In this chapter the focus of study turns to the information each leader received with regard to
Soviet military expenditure and how it influenced policy Firstly the lack of accurate data received
in the Kremlin from the Defence Council will be considered Why was there such a dearth of useful
information and why was the information that was presented to the Politburo and even the General
Secretary himself so unhelpful Secondly the CIArsquos own effort to estimate Soviet defence costs
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Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 2045
Nick Blackbourn 19
will be considered How they were compiled will be briefly discussed (such analysis has been
completed in detail elsewhere in work by Firth and Noren) and then the value of these estimates to
the policymaking process in Washington will be deliberated Scrutiny of these factors will reveal
that in the final analysis the importance of Soviet defence estimations was limited Gorbachev could
not trust the figures that he was presented with but in many cases relevant information did not exist
anyway ldquoIt is probably true that Soviet leaders never had in their policy deliberations an articulated
set of defence spending figures in constant pricesrdquo56
Reagan had already formed his views on the
Soviet Union independent from the information presented to him He used CIA estimates to back up
his policy but not to formulate it in the first instance
In considering the Soviet case the simple reason why internal lsquowestern stylersquo Soviet
defence-spending statistics were so scarce in Moscow was that they were fundamentally of little use
to decision-makers Soviet economic decision-making was not made on a basis of real cost prices
were not the value indicators they represent in a free market economy and instead procurement was
decided on the basis of input output tables used for economic planning
As shown in studies elsewhere the Direct Costing effort of the CIA was flawed 57 This
thesis does not challenge this conclusion but focuses instead on the impact that CIA figures had on
Reaganrsquos perceptions of trends in Russian defence procurement The range of estimations and sheer
guesswork used severely limited the usefulness of the statistics In the last hectic years of the Cold
War these inaccuracies become obvious as Soviet published figures began to reflect reality The
premise of cost estimations of Soviet defence-spending will be critically evaluated on the basis of
these conclusions
56 Firth amp Noren ldquoSoviet Defence Spendingrdquo p14257 See Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the CIArsquos Direct
Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
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Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 2745
Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 2145
Nick Blackbourn 20
The Lack of Official Soviet Spending Statistics
There was a distinct lack of western style accounting in the Soviet Unionrsquos defence sector
throughout the existence of the communist state Many historians and politicians viewed this gap in
sinister terms the lack of information supposedly representing the totalitarian nature of the system
that embodied a complete lack of transparency and accountability58 This interpretation of Soviet
statistical practice may well be warranted There is little doubt that statistics were manipulated to
serve a political purpose however we should be wary of other mitigating circumstances behind the
lack of comparable Soviet data
Common practice in the West has been to release statistics pertaining to the physical cost of
spending and procurement and subsequently the percentage of national income that this expenditure
represented Gross National Product or total national output is a familiar term to western
economists but to Soviet economists the term and concept would have been much less useful
Calculation of national output requires the price level of each individual production item to be
added to create a total However such information was meaningless in the Soviet planned economy
price levels of individual items were designated by the state Price did not reflect the value of a
given commodity and consequently GNP was an arbitrary figure within the Soviet command
economy The Politburo would not want nor need to see spending statistics because it was they who
set prices National accounts simply reflected what prices had been set and the quantity of produce
that had been created an essentially meaningless figure for decision making purposes Much more
useful would have been the calculation of the opportunity cost of certain procurement decisions
58 Aslund A ldquoHow Small Is Soviet National Incomerdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p26
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Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
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Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 2245
Nick Blackbourn 21
Politburo members would then have been able to make better procurement decisions if they could
determine if x tanks were produced the production of x tractors would be foregone
In reality the Soviet hierarchy had access neither to western style spending calculations nor
even detailed breakdowns of the productive impact of defence procurement and expenditure to the
economy as a whole The military held exalted status in the Soviet Union and attempts to instil
notions of accountability into the defence sector were met with fierce resistance and suspicion59
Gorbachev has revealed the attitude towards appraising the military even at the highest echelons of
Soviet government was extremely hostile
ldquoTaboo areas included everything to do with actual military expenditure the situation in
the army in general the state of scientific research in the military-industrial complex
and data on how efficiently financial and material resources for defence were being
used Not even the politburo members knew the full picture They often authorised
decisions on top secret matters without the right to question or discuss themrdquo60
Though seemingly conclusive in its scathing view of the Soviet military-industrial complex we
should be wary of Gorbachevrsquos testimony as he could have been using the defence sector as a
scapegoat for his own economic mismanagement which some later suggested hastened the fall of
Soviet Union61
Despite these concerns Gorbachevrsquos remarks have been verified elsewhere by both
Politburo advisor Chernyaev (who recalls ldquoNo one had even had a remote idea nor had they any
right to know [military spending affairshellip]rdquo62) and also political-historian Galeotti63
59 ldquohellipit seems quite clear that Marxist-Leninist systems generally show a marked tendency to accord their systemsmilitary establishments relatively high priority and favoured treatment in comparison with that granted by other politicalsystemsrdquo In Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p660 Gorbachev ldquoMemoirsrdquo p20361 See Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (New YorkInternational Publishers 2004) and also Garthoff R ldquoThe Great Transition American-Soviet Relations and the End of
the Cold Warrdquo (Washington DC Brookings Institute 1994)62 Chernyaev ldquoMy Six Years with Gorbachevrdquo p118 63 Galeotti ldquoGorbachev and His Revolutionrdquo p61
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Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
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Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
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Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 2345
Nick Blackbourn 22
Mark Harrison in his recent research has uncovered the so-called lsquoKonoplev Reportrsquo64
Though the authenticity of the report is in doubt it outlines expenditures for defence for the Central
Committee of the USSR in the early 1980s But as already noted this information was regarded as
top secret leading Harrison to ponder ldquoIf the information in the Konoplev Report was so sensitive
it is not clear why a joint commission of the parliament and ruling party was appointed to compile
itrdquo65 He suggests that perhaps the report was either propaganda to confuse Western analysts or a
genuine attempt by the Central Committee to find out was really being spent on defence Either
way the report demonstrates the problems Gorbachev encountered in his premiership
In considering the notion of Soviet statistical inaccuracy it maybe more useful to look at what
the Soviet leadership felt constituted the lsquodefencersquo sector Statistical manipulation in most cases did
not simply involve plucking numbers from thin air it evolved from shifting certain figures from one
accounting headline to another Wiles in his study of the economics of Soviet arms notes of Soviet
accountants ldquoTheir extreme reluctance to falsify totals and strong preference for distributing the
item they wish to conceal all over the place in penny packetshelliprdquo 66 Furthermore a number of
defence activities were considered lsquoproductiversquo and not simply a sunk cost for national defence
developing nuclear technologies for example Such activities were not classed as defence
expenditure because they supposedly contributed to the economy rather than extracting from it
Accounting for defence expenditure in the Soviet Union is therefore an extremely complex matter
not only must we consider the presence of deliberate and calculated statistical manipulations but
also the nature of what actually constitutes lsquodefencersquo within the budget Even the composition of
lsquodefencersquo accounting amongst Western states differs Wiles observes
64 ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt [accessed 130407]65 Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From the Close of the BrezhnevErardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003) p1566 Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Politics 1985) p6
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 2445
Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 2545
Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 2445
Nick Blackbourn 23
ldquoThere is a fundamental lack of concern in the west with capital accountancy in the non-
market public sectorhellipIn the USSR depreciationhellipis a large issuehellipBy contrast British
official statisticians have been since 1948 extremely reticent about depreciation
anywherehelliprdquo67
In the US all expenditure within the defence sector was regarded as defence spending irrespective
of whether it contributed to the economy In the Soviet Union however classification was far less
transparent Was this was an accounting decision or a propaganda initiative Military research had
positive externalities on the general scientific knowledge of the Soviet Union as a whole and
therefore despite its primary military purpose can be seen to be a contributor to the value of the
Soviet economy and not listed simply as a lsquodefencersquo expenditure Similarly was the Baikal-Amur
Railway primarily a military endeavour with civilian capabilities or vice versa Should this be a
military or civilian expense The simple charge of continued gross malpractice is not clear-cut
It would appear that the authorities entertained a statistical balancing act Simultaneously
they had to convince the West of the peaceful intentions of the Soviet Union thus stating lower
defence spending figures but also to reveal such levels of expenditure so as to justify to the Soviet
population their relatively low standard of living in return for a strong national defence force At
other stages the Soviet would publish high spending figures to exude strength as they did before the
Reykjavik arms limitation talks in 1985 to create a position of strength from which to bargain with
the West Clearly there was a propaganda nature to spending statistics military and otherwise
within the USSR Maddock goes as far as to suggest ldquoThe official data designed to confuse as
much as clarify must be largely symbolic having a mainly propaganda functionrdquo68
67 Ibid p11468 Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan 1985) p1
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Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3345
Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3445
Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3545
Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 2545
Nick Blackbourn 24
The lack of detailed Soviet information on defence statistics was not simply a result of the
government withholding accurate spending figures It is imperative to remember that defence
statistics in the form of monetary output were not the most useful indicator to the leadership of a
command economy Released statistics were thus not of great significance to the leadership due to
the fact that ldquohellipinformation for top officials was handled with an appalling lack of
professionalismhelliprdquo69 The statisticsrsquo ineffective contributions to policy decision-making meant that
figures were often tweaked and released primarily for propaganda purposes so as to be of at least
some worth to officials
In the late 1980rsquos statistics were re-examined and corrected under lsquoGlasnostrsquo and an
apparent albeit artificial increase in spending resulted This sparked both alarm and confusion in
the West The Soviets were by now claiming a commitment to peace and disarmament but the
released official statistics did not appear to support this claim because they seemed to show a
twelve per cent increase in defence spending70 In real terms it is important to consider how these
statistics were compiled ndash it is not only rearmament and the purchase of munitions that costs
money but demobilisation too Weapon decommission troop reduction and altered manufacturing
processes any from the military all impose additional costs before a long-term savings can be made
As a result of these measures the 198586 fiscal year saw a rise in the defence budget but after this
year in real terms the Soviet defence budget dropped significantly This initial rise in defence
spending though actually used to dent military power gave Gorbachev substantial goodwill from
military circles The secrecy of actual spending destinations became a blessing For a time
Gorbachev hid his demobilisation objectives and thus avoided a backlash from the military
hierarchy at a time he was still manoeuvring to secure unrivalled power in the Kremlin With no
69 Gorbachev ldquoMemoirsrdquo p40970 Michaud N ldquoThe Paradox of Current Soviet Spendingrdquo in Rowen R amp Wolf C (Eds) ldquoThe Impoverished
Superpowerrdquo p114
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Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
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Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 2645
Nick Blackbourn 25
accurate base year to work from now that past costs were revealed as false this actual trend of
defence cost reduction was impossible for western analysts to appreciate The confusion was
compounded as the new Soviet statistics were wildly different to the CIArsquos own calculations which
had been regarded by former CIA director Robert Gates as having ldquohellipperformed admirably in
meeting the challenges of assessing Soviet strengths and weaknessesrdquo71
This significant
discrepancy between actual Soviet spending as published under glasnost and the statistics
produced by the CIArsquos Direct Costing effort will now be considered
Direct Costing Methodology and Reliability
Direct Costing as a statistical process has been assessed elsewhere notably by Firth and
Noren and is not the focus of my study72
As they highlight ldquoCIA estimates often had an important
impact on US defence policyhelliprdquo the analysis of this however they ldquohellipgladly leave to othersrdquo73 I
intend to take up the mantle and investigate the consequences of how the Direct Costing effort may
have been inherently flawed in providing the Reagan administration with information about trends
in Soviet defence-spending This of course will include a limited examination of Direct Costing
methodology but also how the process as a whole managed to significantly misinform the US
President about the levels of Soviet defence-spending
The Direct Costing programme was a yearly statistical study in which the CIA attempted to
value Soviet Defence spending The premise was to be able to provide the president with lsquoa view
from Moscowrsquo an insight into Soviet strategic decision-making Soviet figures were regarded by
71 Gates R ldquoPrefacerdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A
Documentary Collectionrdquo (Washington DC Government Reprints Press 2001) p vii72 Firth amp Noren ldquoSoviet Defence Spendingrdquo73 Ibid p xiii
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Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 2745
Nick Blackbourn 26
the US as bearing little resemblance to actual military expenditure and so were implicitly rejected
by the CIA and played no part in its own calculations It is interesting to note that despite this
rejection Swain chief of economic issues at the CIA felt it was a sign of accuracy ldquohellipthat our
spending estimates are consistent with Soviet datahelliprdquo74
But perhaps the Soviets deliberately
manipulated their own figures to give the CIA false assurances to their incorrect estimates The
theoretical procedure used by the CIA to achieve a figure for Soviet defence expenditure was to
estimate the physical quantity of Soviet military procurement and then attribute a production cost
to each item In this way the programme could build up a balance sheet for the Soviet military and
calculate the level of expenditure within it year on year
In theory the Direct Costing programme appears to be a sound measurement of expenditure
if you know what military hardware is being produced and how much it costs an accurate picture of
defence spending can be compiled with the greatest accuracy In reality however the CIA did not
know exactly what was being produced (though spy Colonel Oleg Penkovsky did provide detailed
order of battle information75) nor was it aware of production costs of Soviet hardware constructed in
Soviet factories Lee has observed that ldquoConceptually all is in order but empirically there are many
problemsrdquo76
There was no open international arms trade that allowed the CIA to calculate the cost of any
particular Soviet weapon To price each piece of hardware the CIA would break down the
equipment in question and then get an American manufacturer to quote its cost This is a major
shortfall in the Direct Costing method American factories we know were much more efficient
than their Soviet counterparts Pravdarsquos economic editor Parfenov demonstrated how a Soviet
74 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen R amp Wolf C (Eds) ldquoThe
Impoverished Superpowerrdquo p10975 Haines amp Leggett ldquoCIArsquos Analysis of the Soviet Unionrdquo p776 Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional Approachrdquo (New YorkPraeger 1977) p7
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Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3445
Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 2845
Nick Blackbourn 27
engine factory in Mogilev employed three thousand five hundred workers whereas the same factory
in Italy hired just nine hundred77
If we consider this example to be endemic in the Soviet Union the
larger labour force would obviously result in significantly higher overhead costs in the Soviet plant
which would logically lead to a higher lsquopricersquo of the final product Thus the Direct Costing method
of price creation is as a method of true calculation inherently flawed Obviously not all production
factories would require a labour force that was almost four times larger than their western
equivalents but it is an important point to note Whilst most Soviet consumer industries operated
within monopoly conditions and faced no competition and thus no incentives for efficient
production the Soviet military sector was in actual fact subject to competition a global
competition with America that we call the Cold War This competition contributed to the defence
bias within the Soviet economy and perhaps made the sector more internationally competitive than
consumer industries in the Soviet Union Quite clearly though regardless of what relative
inefficiencies both between sectors within the USSR and between the Superpowers themselves
were the CIA figures provided to Reagan using the Direct Costing method had severe limitations
Costing Soviet weapons in American factories could not possibly have accurately reflected the costs
associated with production in the Soviet Union
Additional inaccuracies arose where the CIA had no detailed information on a particular
item of Soviet hardware In these cases it lsquoSovietisedrsquo the technologically nearest piece of
equipment within Americarsquos own armoury lsquoSovietisationrsquo meant American hardware was
substituted for Soviet hardware for the purpose of Soviet procurement estimations In effect
Reagan received statistics that included estimated production costs for estimated technology
produced in estimated quantities This cannot be regarded as an accurate representation of the
77 Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished Superpowerrdquop22
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 2945
Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
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Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3445
Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 2945
Nick Blackbourn 28
defence procurement costs of the Soviet Union Whilst standard issue hardware such as planes
tanks guns and ordinance could be counted with relative accuracy the cost of production was
unlikely to be exact More sensitive weaponry such as biological warfare technology nuclear
technology missile technology military satellites and electronic weapon systems would have been
much harder to calculate both in number and cost Satellite imagery could not peer into
underground bunkers and quantity weaponry nor could the number of paid man-hours required to
crack a missile technology be calculated for example Even if numbers of individual missiles could
be counted accurately to build a complete picture of expenditure the quantity and costs of spare
parts and components would need to be gathered and this was nigh on impossible to compile
Operations and maintenance costing is another source of error within the CIA figures
Analysts attempted to calculate what it would cost for the Soviet armed forces to maintain its
hardware and conduct lsquonormalrsquo operations This expenditure was unknown and to quantity it the
costs incurred by US armed forces to maintain and service a force of similar size doing similar
things was calculated and then attributed to Soviet armed forces Soldiersrsquo wages fuel costs and
operational procedures involving them are all likely to be significantly different in the Soviet
Union Once again a troubling source of inaccuracy is evident in Soviet defence spending
estimations
ldquoThere are many data gaps and uncertainties inherent in the CIArsquos Direct Costing approach
to estimating USSR national security expenditures past and presentrdquo78With so many assumptions
and estimations used to compile the CIA figures for defence spending ndash what the head of research at
the CIA called the lsquoInventory of Ignorancersquo - this method in estimating defence expenditure in the
Soviet Union cannot be regarded as being an accurate representation of defence costs incurred by
78 Lee ldquoThe Estimation of Soviet Defence Expendituresrdquo p1
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3045
Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
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Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3245
Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
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Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3445
Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3545
Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3645
Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3045
Nick Blackbourn 29
the USSR79 Having highlighted the many flaws and inaccuracies to the CIA estimations we now
turn to the implications for the Reagan administration What did the estimates reveal and how
relevant was this information for the purposes of policy formation under Reagan
Direct Costing Use and Relevance to the Policy-making of President Reagan
In revealing the limitations of the CIA Direct Costing effort it would be useful to revisit the
actual purpose of these estimates ndash in other words what were they supposed to reveal to President
Reagan Earlier we explored the relationship of the CIA to Reagan and determined that he lsquocherry-
pickedrsquo the information that matched his own expectations of Soviet actions and objectives in the
defence sector In this final section I will show that the premise behind these CIA estimates used by
Reagan to justify his worldview and policy formation was flawed A direct defence spending price
comparison between the US and USSR was not particularly useful for a number of reasons Firstly
spending statistics do not show military capabilities For example the Soviet Union could have
been spending billions of roubles on a missile research programme without any success The
accounting balance sheet of defence-spending would have subsequently revealed large defence
expenditure but the actual threat to the US would have remained unchanged Secondly as hinted at
elsewhere the Soviet government did not know what their current defence spending in price terms
actually was - as Aslund suggests ldquohellipthe Soviets themselves may not have an accurate or full
accounting of their national security expenditureshelliprdquo80
CIA figures were supposed to give lsquoa view
from the Kremlinrsquo they did not defence estimates were at best educated guesswork Maddock
believes that the CIA was ldquohellipunable to provide acceptable rouble estimates of American defence-
79 Firth and Noren ldquoSoviet Defence Spendingrdquo p1380 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p113
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3145
Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3245
Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3345
Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3445
Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3545
Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3645
Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3145
Nick Blackbourn 30
spending since it lacks sufficient data on Soviet production and costsrdquo81 Thirdly the Direct
Costing method required extensive lsquoSovietisationrsquo with US factory costs which disregarded
production factor valuations labour was expensive in the US with hi-technology relatively cheap
In the USSR the opposite was true By pricing production costs accordingly CIA estimates would
overestimate the cost of weapons requiring labour-intensive production an area in which the USSR
enjoyed a comparative advantage over the US The reverse is true of high-technology production
costs Finally the CIA assumes a clear and distinct separation between the civilian and defence
sector But the heavily militarised Soviet economy often blurred the boundaries between them
Many civilian projects for example included military aspects to them the BAM railway has
already been mentioned civilian factories were built partially underground to preserve defence
production in a potential war commercial ships were a lsquoroll-on-roll-offrsquo design which was less
commercially viable than a container design but better suited to military needs82
General Odom
goes as for to suggest that the Soviet military was a sector ldquohelliparound which all the economic
activity is done and plannedrdquo83 This is a vital point and will be expanded upon later
Spending statistics do not reveal military capability The main benefits of such analysis are
politico-economic They show the economic burden of the military and allow for a spending
comparison between two countries But on both these counts the CIA figures are lacking Over the
course of the Direct Costing effort the military burden of the Soviet Union was stated as being
between six and thirteen percent84 The true burden was nearly three times this upper limit at forty
percent As for providing a spending comparison not only did the figures represent a large
undervaluation of Soviet spending but the authors even acknowledged a ten percent inaccuracy
81 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p1882 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo pp130-13483 Firth and Noren ldquoSoviet Defence Spendingrdquo p14784 Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p15
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3245
Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3345
Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3445
Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3545
Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3645
Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
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Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
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httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3245
Nick Blackbourn 31
range85 which considering the amount guesswork involved in its calculation seems extremely
optimistic Ten percent is no small sum especially when the statistics would be used in part to
calculate Americarsquos own defence budget Whether Cold War defence strategy was to seek either
lsquosuperiorityrsquo or lsquoparityrsquo these strategies were based on Soviet spending estimates and it seems
astonishing that a major indicator informing policy had such a large margin of error Because of
this somewhat ironically the CIA figures which underestimated Soviet defence expenditure may
have severed to temper the intensity of the Cold War arms race Firth and Noren suggest that
without the understated Direct Costing figures US views on the USSR ldquohellipwould be been more
alarmist and US defence spending during the Cold War would have been much higherrdquo
86
This
would appear to be an admission of Direct Costing inaccuracy inconsistent with the view
throughout the rest of their study that stresses the lsquousefulnessrsquo of Direct Costing If Reagan had
been informed that the Soviet defence burden was forty per cent of GDP rather than the eighteen
per cent that the CIA had informed him of his rhetoric foreign policy and military build up would
have been much more severe and intense to match this high level of militarisation The fallibility of
CIA estimation may have done the world a favour
The Direct Costing effort was at best a crude guide to the general trends of Soviet defence
spending CIA analysts themselves conceded this point ldquowe generally have more confidence in
data that represent trends than in data for absolute levels especially the levels for individual
yearsrdquo87 For the period on which this thesis is focused this had important implications An
assumption that the main use of CIA Soviet defence estimates for Reagan was to reveal the general
trends in expenditure is fair as this was the area in which the authors themselves considered their
85 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p10886 Firth and Noren ldquoSoviet Defence Spendingrdquo p20287 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf (Eds) ldquoThe
Impoverished Superpowerrdquo p108
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3345
Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3445
Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3545
Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3645
Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3945
Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3345
Nick Blackbourn 32
study to be most accurate Following Gorbachevrsquos drive for lsquoopennessrsquo official Soviet data began
to represent reality and were no longer falsified propaganda instruments Therefore in 1985
ldquohellipthere was an announced increase of 12 per centhelliprdquo88 in the defence budget despite in reality the
actual budget having been reduced by some fourteen per cent89
The inaccuracies of the Direct
Costing effort had been exposed Their estimates were and had been greatly understated when
Reagan saw official Soviet defence expenditure figures well in excess of the CIA figures he could
conclude either that Gorbachev had suddenly enacted a massive defence procurement programme
or that his own intelligence was and had been for many years flawed With no observed physical
build up of military forces it was clear that the estimations were wrong
The CIA valuation through its lsquoSovietisationrsquo practices significantly altered the perceived
spending pattern of Soviet military procurement Leaving aside the aforementioned costing
inaccuracies these practices created from a military-strategic standpoint the Direct Costing effort
completely distorted the distribution of Soviet spending in the defence sector If the CIA attempted
to calculate the production costs of a rifle in an American factory the costing structure for such a
plant would be wildly different to the Soviet factory that in reality produced the weapon The
American factory would most likely attempt to automate the production line Robotic machines
would perform the monotonous tasks and operate at a great intensity and for longer hours than an
American worker could achieve either physically or legally The prevalence of such robotic
technology in the United States relative to the Soviet Union in the 1980s coupled with the relative
expense of labour would make an automated factory economically efficient to run The fixed cost-
base of such a plant and the purchase of robotic technology may have been high but the variable
costs including labour costs would have been very low To further consider that such robotic
88 Michaud N ldquoThe Paradox of Current Soviet Military Spendingrdquo in Rowen amp Wolf (Eds) ldquoThe Impoverished
Superpowerrdquo p11489 Rowen amp Wolf ldquoThe Impoverished Superpowerrdquo p6
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3445
Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3545
Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3645
Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3945
Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3445
Nick Blackbourn 33
technology was likely to be adaptable to various different production lines the fixed cost base of
the factory over the long term falls further The cost structure of an American factory to reproduce
Soviet arms is vastly different to the cost structure in the Soviet Union The CIA figures as a result
ldquohellipundervalue that aspect of American defence spending where it has the greatest comparative
advantagerdquo90
There was no attempt to equate the cost-base between the two countries and from an
end-user in the American governmentrsquos point of view the composition of Soviet defence spending
was simply incorrect
Cost overheads we have seen were different between the two Superpowers The use of high
technology in production was relatively more expensive in Russia However the lack of a clear
divide between the civilian and defence sectors further complicated any attempt to calculate actual
Soviet defence spending There is no doubt that the civilian sector subsidised the defence sector In
a factory producing both tanks and tractors for example the overhead costs of machinery would be
disproportionately borne by tractor production and thus the cost of each tank would be lowered 91
An attempt to resolve this dilemma is fraught with difficulty Was wear and tear on machinery used
to produce a tank more than for a tractor Were tractors built in more months of the year and thus
used the equipment more A CIA analyst could not possibly know and they had to estimate which
lead to further inaccuracy Even contemporary CIA director Gates suggested ldquohellipthat the Soviet
economy was about 15 ndash 20 [percent] purely military and 20 [percent] purely civilian and the
remainder could not be broken down into civilian or military componentsrdquo92 This is by no means
an accurate breakdown of the Soviet economy but it does demonstrate how even the head of
foreign intelligence in the US recognised the problems posed in establishing what actually
constituted the Soviet defence sector
90 Holzman in Maddock ldquoThe Political Economy of Soviet Defence Spendingrdquo p2191 Firth and Noren ldquoSoviet Defence Spendingrdquo p8992 Ibid p89
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3545
Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3645
Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3945
Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3545
Nick Blackbourn 34
Rowen has noted that many civilian sector items incurred greater costs to make them ready
for military use Planes for example were given strengthened undercarriages at increased cost to
allow military use in wartime Civilian truck production favoured the military also Worldwide the
average four-ton truck constituted three percent of total production in the Soviet Union the figure
was eighty percent93
This was simply because a four-ton truck was the most useful from a military
standpoint Therefore it was the civilian sector that bore the initial expenses but the military
obviously benefited These costs werenrsquot included in the Direct Costing effort but Soviet military
capability would benefit greatly from such spending The militarization of the Soviet economy
along these lines contributed to the gross underestimation of Soviet defence spending
Conversion from dollars to roubles and vice-versa presented further problems for the purpose
of spending comparisons for US government to review in order to judge their own spending
requirements The Kremlin did not procurement military hardware in dollars and nor did
Washington set its budget in roubles As Aslund has recognised ldquoA mole in the Kremlin could
never reveal the dollar cost of Soviet defence activities becausehellipthe Soviets donrsquot spend dollarsrdquo94
The roubledollar conversion rate was thus key and an acknowledged source of significant error
Hidden inflation in the Soviet economy meant the CIA was in a constant battle to set a realistic
conversion rate indeed each year it attempted to better estimations of previous years
ldquoThe r$ ratios represent the weakest link in the procurement estimating equation Since
Soviet rouble prices for weapons systems generally are not available the r$ ratios
93 Epstein D ldquoThe Economic Cost of Soviet Security and Empirerdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p13094 Swain D ldquoThe Soviet Military Sector How It Is Defined and Measuredrdquo in Rowen amp Wolf ldquoThe Impoverished
Superpowerrdquo p106
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3645
Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3945
Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3645
Nick Blackbourn 35
represent a set of estimates generated in order to assign a rouble price itself unknown
to both the identified and the estimated components of each Soviet systemrdquo95
Thus the CIA figures underestimated the level of Soviet defence expenditure96 This led Direct
Costing end users which included Reagan to the conclusion that the Soviet defence sector was a
well-tuned arms manufacturer It seems strange to suggest that by underestimating arms expenditure
the CIA overestimated the threat of the USSR but that was indeed the result By understating
procurement spending but achieving better accuracy in assessing the actual Soviet order of battle
through utilisation of its spy network and satellite surveillance it appeared that the Soviets were
able to support their military on a smaller proportion of national income than was actually the case
Reagan remembers ldquoI had been given a briefing on the astonishing Soviet arms build-up which left
me amazed at its scale cost and breadth and the danger it posed to our countryrdquo97 But at the same
time he ldquohelliplearned that the Soviet economy was in even worse shape than Irsquod realized [sic]rdquo98
This
apparent contradiction gave the somewhat distorted view of Soviet Union as a military powerhouse
but at the same time a system teetering on the brink of collapse Indeed Rowen has commented that
ldquoIf the CIA assessments had been reasonably accurate the Soviet economy would be a maturing
industrialised economyhellipThere would be little need for a radical economic reform Gorbachevrsquos
urgency would be incomprehensiblerdquo99
Paradoxically the understatement of Soviet defence expenditure by the CIA meant Reagan
was reacting to an exaggerated threat but this fitted with his own perceptions of communist Soviet
Union being an ldquoEvil Empirerdquo100
In reality Reaganrsquos own views on the fragility of the Soviet
95 Lee ldquoThe Estimation of Soviet Defence Expenditurerdquo p996 Rosefielde ldquoFalse Sciencerdquo p5997 Reagan ldquo An American Liferdquo p55198 Ibid p23799 Rowen amp Wolf ldquoThe Impoverished Super Powerrdquo p15100 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3945
Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3745
Nick Blackbourn 36
economy as a whole was matched in the defence sector it too was costly inefficient and backward
Garthoff has highlighted ldquoPresident Reaganrsquos notorious disregard for concrete factshelliprdquo101
which
seems to raise questions over whether Reagan was influenced by wayward statistical analysis by the
CIA But he surely had to trust the information the professional national intelligence agency
provided even more so if it matched Reaganrsquos own worldview To do otherwise would question the
professionalism of its authors His own beliefs concerning communism and the Soviet Union meant
he envisaged a militaristic and hostile adversary and the CIA Direct Costing statistics presented a
statistical model to support this albeit by methodological errors
Concluding Remarks
This thesis has shown is that cost estimations of Soviet defence expenditure had little influence in
dictating policy in the 1985 ndash 1989 period despite their apparent importance in government rhetoric
on policy justification102
In the Soviet Union Gorbachev was struggling to remove the unwarranted influence of the
military from the higher echelons of the Communist Party and the subsequent burden placed on the
Soviet economy and its people The available statistical information upon his rise to power in
March 1985 was both lacking in substance and accuracy Gorbachev was battling against the
military tradition of the USSR to restructure the economy He adopted lsquoGlasnostrsquo policies in an
attempt to secure his position as Premier by allying himself with the Soviet people and actively
distancing himself from the military hierarchy Glasnost forced the defence sector into greater
101 Garthoff ldquoThe Great Transitionrdquo p9102 See Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 22 1982rdquo inldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United States Government Printing Office1983) pp1506-7
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3945
Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3845
Nick Blackbourn 37
transparency over its procurement costs and this meant greater reliability of spending statistics as
Gorbachevrsquos tenancy as Premier progressed More detailed spending statistics did not clarify to any
greater extent the fact that military expenditure was overly excessive and had to be cut His policies
both before and after more accurate breakdowns of Soviet military spending centred around
slashing its budget and burden on the economy Therefore the influence of spending estimates on
Gorbachev was extremely limited
In America Reagan had formed his objectives for his presidency without consulting any CIA
figures He attempted to revive US military strength and pursued a confrontational foreign policy
against the Soviet Union even before he had set foot in the White House and reviewed any
intelligence documentation Reagan is not the only American President who has been charged of
selecting intelligence to justify a predetermined policy For example accusations that President
Bush carefully selected intelligence to justify an already envisioned invasion of Iraq surround the
2003 lsquoOperation Iraqi Freedomrsquo103 Reaganrsquos own preconceived goal in 1981 was to lsquotranscendrsquo
communism and witness the end of a ldquohellipbizarre chapter in human history whose last pages even
now are being writtenhelliprdquo Reaganrsquos personal hatred of communism meant that statistical
confirmation of the threat of communism though welcome were not at the base of his policies104
The CIA Direct Costing effort was inaccurate but managed to portray the USSR as a dangerous
adversary who posed a threat to the American way of life Political-scientist Freedman questioned
in 1986 ldquohellipto what extent is the produce of the intelligence community influenced by the political
requirements of policymakersrdquo105
The answer during the Reagan era may never be revealed but
103 Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence Assessmentsrdquo(Washington DC Washington Institute For Near East Policy 2005)104 Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals in Orlando FloridaMarch 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 13042007]105 Freedman ldquoUS Intelligence and the Soviet Strategic Threatrdquo p184
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3945
Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 3945
Nick Blackbourn 38
Reaganrsquos own - very public - views on communism and of the Soviet Union itself no doubt
influenced the information with which he was presented Freedman considers that estimators
ldquohellipin a hierarchical intelligence organisation may come to feel that their lives will be
easier and their careers will prosper if they close their minds to those hieratical notions
that contradict the images held by their superiorshellipEstimators may feel forced to adopt
adversary images which have been made official not by senior professionals but by
senior policymakersrdquo106
The inaccurate defence estimations that were compiled by the Direct Costing estimators at the CIA
thoroughly understated Soviet expenditure yet the information was still presented in the most
alarmist terms for the President Access to the President was severely limited foreign policy
concerns are a limited aspect of the presidential remit Rather than attempt to fully understand the
findings of the CIA including all issues of accuracy and relevancy the political leadership simply
wanted ldquohellipa shorthand yardstick to compare US and Soviet military spendinghelliprdquo107 The CIA to
secure funding maximised its limited exposure by stating the worse-case scenario pandering to the
political lsquorequirementsrsquo of the administration In the footnotes to a draft report on the Soviet threat
an anonymous author writes to CIA Director Robert Gates ldquoI hope it at least captures the flavour
you were looking forrdquo108
This is not reflective of the impartial reports one might expect of the CIA
Furthermore James Locher staff member of the Senate Armed Services Committee highlighted
that many politicians ldquohellipbelieve [that] this analysis is intentionally misleading that it somehow
comes out to exactly what it is that the Administration would like to argue on Capital Hillhelliprdquo109
106 Ibid p185107 Berkowitz et al (1993) ldquoReport of the Working Group Report of the Methodology Panel of the Working Group onMilitary Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic Performance 1970 ndash 1990rdquoComparative Economic Studies 35 (Summer) pp 33 - 48108 CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for Intelligence April 22
1987 rdquo in Firth amp Noren ldquoSoviet Defence Spendingrdquo p244109 Firth amp Noren ldquoSoviet Defence Spendingrdquo p87
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4045
Nick Blackbourn 39
This accusation perhaps goes a little far as in reality the administration simply disregarded the
aspects of the CIA estimates they did not like rather than enforce all analyses to meet one particular
conclusion
To give estimations of Soviet defence the scholarly attention they deserve this thesis has
neglected the other Sovietological studies that were conducted by the CIA Whilst Direct Costing
seemed to highlight the danger of Soviet militarism other CIA reports were predicting even as
early as 1981 that ldquo[A] possibility is that the Soviets will reduce the level of military expenditure
absolutely (rather than reducing the rate of increase)hellipreductions cannot be excluded as a long run
possibilityrdquo
110
Putting the Direct Costing effort in this context explains the implications of
Reaganrsquos thirteen per cent intelligence budget increase in 1981 With the amount of money that was
allocated to American intelligence agencies as a result of the defence build-up not just to the
Central Intelligence Agency but to the Defence Intelligence Agency and also to the National
Security Agency the President could find somewhere a report that suited his aims CIA Direct
Costing estimates of Soviet defence expenditure thus only added fuel to Reaganrsquos own ideological
fire it did not start it in the first instance Reaganrsquos hatred of communism formed decades before he
even entered politics in his Hollywood years111 CIA estimates in the 1981 ndash 1989 period
contributed little to the direction of policy during Reaganrsquos presidency it was used merely to justify
it Even the Director of the CIA recommended against using Direct Costing in policy-formation
ldquo[Gates]hellipplanned to urge DoD [Department of Defence] to rely on physical comparisons rather
than dollar comparisons of the defence programsrdquo112
Communism was destined for consignment to
Reaganrsquos ldquohellipash-heap of historyhelliprdquo but the contribution of the Direct Costing effort which offered
110 April 1981 Intelligence Assessment ldquoThe Development of Soviet Military Power Trends Since 1965 and Prospectsfor the 1980srdquo in Haines amp Leggett (Eds) ldquoCIArsquos Analysis of the Soviet Unionrdquo p308111 See Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge Cambridge University Press1994)112 Firth amp Noren ldquoSoviet Defence Spendingrdquo p88
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4145
Nick Blackbourn 40
often a hopelessly inaccurate representation of Soviet defence expenditure was negligible113
Levensteinrsquos proverbial lsquobikinirsquo of Soviet defence estimations has been laid bare and the discovery
is less than appealing
113 Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4245
Nick Blackbourn 41
Bibliography
Primary
Berkowitz et Al ldquoReport of the Working Group Report of the Methodology Panel of the WorkingGroup on Military Economic Analysisrdquo ldquo An Evaluation of the CIArsquos Analysis of Soviet Economic
Performance 1970 ndash 1990rdquo Comparative Economic Studies 35 (Summer 1993)
CIA SOVA Report ldquoThe State of the Soviet Economyrdquo ldquo Memorandum for the Director for
Intelligence April 22 1987 rdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos Analysis of the Soviet
Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
CIA Report April 1981 Intelligence Assessment ldquoThe Development of Soviet Military PowerTrends Since 1965 and Prospects for the 1980srdquo in Haines G amp Leggett R (Eds) ldquoCIArsquos
Analysis of the Soviet Union 1947 ndash 1991 A Documentary Collectionrdquo (Washington DC 2001)
Gorbachev M in Cherniaev A ldquo My Six Years With Gorbachevrdquo (University Park PennsylvaniaState University Press 2000)
Gorbachev ldquoIzbrannye Rechi i Statirdquo (Moscow 1987) cited in Colton T amp Gustafson TldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev to Gorbachevrdquo (PrincetonPrinceton University Press 1990)
Gorbachev M ldquo Memoirsrdquo (London Bantams 1996)
Gorbachev M ldquoPerestroika New Thinking for Our Country and the World rdquo (London Collins1987)
ldquoThe Konoplev Reportrdquo ldquoWarwick Economic Research Papersrdquolthttpwwwwarwickacukfacsoceconomicsstafffacultyharrisonpaperskonoplevpdfgt[accessed 130407]
National Security Council January 17 1981 ldquoNational Security Directive Decision 75rdquoldquoFederation of American Scientists Intelligence Resource Programrdquolthttpwwwfasorgirpoffdocsnsddnsdd-075htmgt [accessed 190407]
Ogarkov N ldquo Always In Readiness to Defend the Fatherlandrdquo (Moscow 1982)
Parfenov in ldquoPravdardquo January 31 1987 (Moscow) in Rowen R amp Wolf C ldquoThe Impoverished
Superpower Perestroika and the Soviet Military Burdenrdquo (San Francisco Institute forContemporary Studies 1997) p22
Reagan R ldquo An American Liferdquo (London 1991)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4345
Nick Blackbourn 42
Reagan R ldquoAddress at Commencement Exercises at the University of Notre Dame May 171981rdquo ldquoThe Ronald Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198151781ahtmgt [accessed 130407]
Reagan R ldquoAddress Before a Joint Session of Congress on the State of the Union February 4
1986rdquo ldquoThe Ronald Reagan Presidential Libraryrdquolthttpwwwreaganutexaseduarchivesspeeches198620486ahtmgt [accessed 130407]
Reagan R ldquoAddress to the Nation on Strategic Arms Reduction and Nuclear Deterrence Nov 221982rdquo in ldquoPublic Papers of the Presidents Ronald Reagan 1982rdquo (Washington DC United StatesGovernment Printing Office 1983)
Reagan R ldquoBegin Bombingrdquo ldquoThe National Public Radio Archiverdquolthttpwwwnprorgnewsspecialsobitsreaganaudio_archivehtmlgt [accessed 130407]
Reagan R lsquoEvil Empire Speech June 8 1982rsquo ldquo Modern History Sourcebookrdquo
lthttpwwwfordhameduhalsallmod1982reagan1htmlgt [accessed on 130407]
Reagan R ldquoRemarks at the Annual Convention of the National Association of Evangelicals inOrlando Florida March 8 1983rdquo ldquoThe Reagan Presidential Libraryrdquo lthttpwwwreaganutexaseduarchivesspeeches198330883bhtmgt [accessed on 130407]
Secondary
Bailey N ldquoThe Strategy That Won the Cold Warrdquo (Virginia The Potomac Foundation 1998)
Becker A ldquoSitting On Bayonets The Soviet Defense Burden and Moscows Economic Dilemmardquo(Santa Monica UCLA Center for the Study of Soviet International Behavior 1983)
Blank S amp Kipp J (Eds) ldquoThe Soviet Military and the Futurerdquo (London Greenwood Press1992)
Colton T amp Gustafson T ldquoSoldiers and the Soviet State Civil-Military Relations from Brezhnev
to Gorbachevrdquo (Princeton Princeton University Press 1990)
Enthoven A amp Smith K ldquoHow Much is Enough Shaping the Defense Program 1961-1969rdquo
(New York Harper Row 1971)
Firth N amp Noren J ldquoSoviet Defence Spending A History of CIA Estimates 1950 ndash 1990rdquo(College Station Texas AampM University Press 1998)
Freedman L ldquoUS Intelligence and the Soviet Strategic Threat rdquo (London Macmillan 1986)
Gaddis J ldquoThe Cold Warrdquo (London Allen Lane 2007)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4445
Nick Blackbourn 43
Galeotti M ldquoGorbachev and His Revolutionrdquo (Basingstoke Macmillan 1997)
Garthoff R ldquoThe Great Transition American ndash Soviet Relations and the End of the Cold Warrdquo(Washington DC Brookings Institution 1994)
Green W amp Karasik T (Eds) ldquoGorbachev and His Generals The Reform of Soviet Military Doctrinerdquo (Boulder Westview Press 1990)
Haines G amp Leggett R ldquoCIArsquos Analysis of the Soviet Union 1947 ndash 1991 A Documentary
Collectionrdquo (Washington DC Government Reprints Press 2001)
Harrison M ldquoHow Much Did the Soviets Really Spend On Defence New Evidence From theClose of the Brezhnev Erardquo ldquoWarwick Economic Research Papers No 662rdquo (Warwick 2003)
Herspring D ldquoThe Soviet High Command 1967 ndash 1989 Personalities and Politicsrdquo (PrincetonPrinceton University Press 1990)
Hooker G ldquoShaping the Plan For Operation Iraqi Freedom The Role of Military Intelligence
Assessmentsrdquo (Washington DC Washington Institute For Near East Policy 2005)
Jacobsen C (Ed) ldquoThe Soviet Defence Enigmardquo (Oxford Oxford University Press 1987)
Keeran R amp Kenny T ldquoSocialism Betrayed Behind the Collapse of the Soviet Unionrdquo (NewYork International Publishers 2004)
Kengor P ldquoThe Crusader Ronald Reagan and the Fall of Communismrdquo (New York Regan2006)
Kotkin S ldquoArmageddon Averted The Soviet Collapse 1970 ndash 2000rdquo (Oxford Oxford UniversityPress 2001)
Lee W ldquoThe Estimation of Soviet Defence Expenditures 1955 ndash 75 An Unconventional
Approachrdquo (New York Praeger 1977)
Maddock P ldquoThe Political Economy of Soviet Defence Spendingrdquo (Basingstoke Macmillan1985)
Matlock J ldquo Reagan and Gorbachev How the Cold War Endedrdquo (New York Random House2004)
MccGwire M ldquoPerestroika and Soviet National Securityrdquo (Washington DC BrookingsInstitution 1991)
Rosefielde S ldquoFalse Science Underestimating the Soviet Arms Buildup An Appraisal of the
CIArsquos Direct Costing Effort 1960 - 1985rdquo (Oxford Transaction 1987)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)
8172019 Soviet Defence Spending Estimationspdf
httpslidepdfcomreaderfullsoviet-defence-spending-estimationspdf 4545
Nick Blackbourn 44
Rosefielde S (1990) ldquoSoviet Defence Spending The Contribution of the New Accountancyrdquo inldquoSoviet Studies 42rdquo pp59-80
Rowen R amp Wolf C ldquoThe Impoverished Superpower Perestroika and the Soviet Military
Burdenrdquo (San Francisco Institute for Contemporary Studies 1997)
Schweizer P ldquoVictoryrdquo (New York Atlantic Monthly Press 1994)
Vaughn S ldquo Ronald Reagan in Hollywood Movies and Politicsrdquo (Cambridge CambridgeUniversity Press 1994)
Weickhardt G (1984) ldquoThe World According To Ogarkovrdquo in ldquo International Security 8rdquo pp182-5
Wiles P ldquoThe Economics of Soviet Armsrdquo (London London School of Political Science 1985)
Wirls D ldquo Build Up The Politics of Defence in the Reagan Erardquo (Ithaca Cornell University Press1992)