(1) Western plant and equipment to help on their severe productivity
problem;
(3) specialty steels and large diameter steel pipe, pipe laying machinery and
compressors which will help meet their energy problems and which, coupled
with the commitment of financing and gas markets from Western European
nations, will enable them to maintain their hard currency earnings; and
(4) food, especially grains and meat.
I have asked the Intelligence Community to develop, against the background of
this paper, a national estimate on the impact of a coordinated COCOM effort to:
(a) make it as difficult as possible for the Soviets to continue to build
their military capability, and
(b) to pursue more aggressively the prevailing less sweeping policy of
depriving the Soviets of strategically valuable technology, thus forcing
them to do their own research and development.
Attachment
Paper Prepared in the Central Intelligence Agency2
Washington, October 26, 1981
THE STATE OF THE SOVIET ECONOMY AND THE ROLE OF EAST-WEST
TRADE
Overview
As the Soviet Union completes the first year of its new five-year plan,
the economy has turned sour before the long anticipated labor and energy
problems have come into play. Three bad harvests have left agriculture
in disarray. Meanwhile, transportation and materials bottlenecks and
smaller productivity gains have reduced industrial growth sharply.
Because prospects for raising productivity are poor, GNP growth may well be limited to 1–2
percent on average by the mid-1980s.
Slower economic growth will present President Brezhnev and his colleagues with some increasingly tough
and politically painful choices regarding resource allocation and
economic management. Annual increments to national output in the early
1980s will be too small to permit them simultaneously to meet mounting
investment requirements, to maintain growth in defense spending at rates
of the past, and raise the standard of living appreciably. Simply
stated, something will have to give.
Given their problems, the Soviet need for Western goods and credits will
increase greatly. Western imports would help planners deal with the
basic problems confronting the Soviet economy during the 1980s—declining
productivity and resource stringencies. Imports of Western plant and
equipment, though now only about 5 percent of total domestic investment,
make a disproportionately large contribution since their productivity is
substantially higher than Soviet-designed equipment. Large food imports
will be required to maintain consumer morale and encourage labor
productivity during the 1980s.
Soviet leaders, however, would be unlikely to change their foreign policy
to ward off a Western economic embargo. They do not believe such a
course is economically necessary, in part because they do not
think—based on the Afghanistan experience—that a comprehensive embargo
can be implemented, much less sustained for more than year or so.
Moreover, changing Soviet foreign policy to prevent an embargo
[Page 343]
would be viewed as appeasement
and would undermine the position of anyone who might recommend it.
If an embargo were implemented, however, a denial limited to US-origin
equipment, technology and foodstuffs would be disruptive only in the
short term; other Western and some East European products would be
adequate substitutes. Only if the USSR
were denied access to most Western equipment and technology for an
extended period would the Soviet economy suffer substantial damage.
Politically, the response reaction to a full scale embargo is highly
unpredictable. The Soviet leadership, for example, might respond by
taking an even more aggressive stance internationally. They probably
would see little positive incentive in restraining their behavior abroad
and might believe that foreign adventurism could be used to rally
support for the economic sacrifices and the greater discipline that
would be required at home.
The Current State of the Soviet Economy
As the Soviet Union completes the first year of its new five year plan,
the economy has turned sour before the long anticipated labor and energy
problems have come into play. After averaging close to 4 percent during
most of the 1970s, CIA measures of the
average annual rate of GNP growth fell
to just 1 percent during 1979–80. Only a weak rebound is expected this
year.
Agriculture
Agriculture has been Moscow’s biggest headache. The Soviets have now
suffered their third straight harvest failure. We estimate that the
grain crop will be about 170 million tons, 19 million tons less than
last year’s poor crop. Because meat production and the output of most
other crops are expected to exceed last year’s depressed level, however,
total farm output should increase slightly compared with last year.
Nevertheless, output will still fall short of the 1976 level.
While the odds are that the weather will be better next year, a return in
the coming decade to the unusually favorable weather patterns that
existed from the mid-60s to the mid-70s seems unlikely. Rather, the
somewhat harsher conditions that prevailed for 20 years prior to the
mid-60s are likely to be the rule. In this environment, the gains in
agricultural output that accrued between the mid-60s and mid-70s—largely
the result of good weather—will be nearly impossible to achieve in the
1980s unless there is a sharp reversal of current trends in the delivery
of machinery and fertilizer to agriculture.
Industry
While agriculture has grabbed most of the headlines, industry also has
been doing poorly. More than halfway through 1981, growth in
[Page 344]
almost every major sector is
running behind the pace of a year ago. Civilian industrial output grew
by less than 2½ percent in first-half 1981 compared with first-half
1980. In the postwar period, only the 1979 first-half showing was
worse.
Lagging output of industrial materials is a major reason for the
economy’s malaise. An abrupt slowdown in the growth of the steel and
construction materials sectors (Table 1) has had a decided effect on new
fixed investment, while shortages of nonferrous materials, lumber, and
paper have become increasingly evident.
Growth of Soviet energy production also has slowed. After averaging
almost 5 percent during most of the 1970s, primary energy production
should fall to less than 3 percent this year. Oil output has been almost
stagnant for the past year, while coal output—which peaked at 724
million tons in 1978—will probably decline to 710 million tons this
year. Only gas continues to do well; the USSR should have little trouble in reaching its 1981
production goal of 16.2 trillion cubic feet. Meanwhile, spot fuel
shortages have become more frequent, reflecting a tighter supply
situation as well as distribution problems. Although the Soviets are
stepping up their efforts to increase the efficiency of energy use in
the economy, campaigns of this kind in the past have fallen far short of
their targets.
[Omitted here is the body of the paper.]
