Politics and Guesswork: CIA and DIA Estimates of Soviet Military Spending

Franklyn D. Holzman Politics and Guesswork I CIA and DIA Estimates of Soviet Military Spending Until May, 1989, the figure that the Soviet government published annually,’ without explanation, for its total military expenditures (ME),2was obviously much too small to encompass the activities of the Soviet defense establishment. The U.S. government therefore has allocated substantial resources each year to the U.S. intelligence community to make estimates of its own. These estimates, which sum up the Soviet defense effort, are probably the most important factors in the determination of U.S. military policies toward the Soviet Union. When the U.S. defense budget is discussed each year before Congress, aggregate Soviet defense spending estimates and trends usually receive more attention than any other variable. The importance of U.S. estimates of Soviet defense spending is reflected, for example, in President Reagan’s first State of the Union address on February 18, 1981, in which he justified his military buildThis article benefited from helpful comments by Abram Bergson, who is not responsible, of course, for my views, errors, or omissions. Franklyn D. Holzman is Professor of Economics in the Department of Economics and the Fletcher School of Law and Diplomacy, Tufts University, and a Research Associate at the Harvard Russian Research Center. He is the author of Financial Checks on Soviet Defense Expenditures (D.C. Heath, 1975) and numerous articles on Soviet military spending, including “The Burden of Soviet Security and its Economic Implications,” in Carl G. lacobsen, ed., Strategic Power: U.S./USSR (Macmillan, forthcoming ). 1. On May 30, 1989, after this article was completed, Soviet President Mikhail Gorbachev announced a “real” figure of Soviet military expenditures (ME), showing Soviet ME as a percentage of gross national product (ME/GNP)to be 9 percent. Gorbachev’s figure for 1989 ME was 77.3 billion rubles, or almost four times as large as previous published figures. ”Soviet Military Budget: $128 Billion Bombshell,” Neu York Times, May 31, 1989, p. A-10. The Soviet estimate is discussed further below. 2. Acronyms used in this article include: ME: Military expenditure. GNP: Gross National Product. ME/GNP: The share of GNP represented by military expenditures; an indicator of the commitment to and burden of defense spending. BE: Budget expenditures; the total of governmental expenditures in the Soviet Union, including all-union government, republic, regional, and local government expenditures. M&E: Machinery and equipment. MBMW: Machine-building and metal-working; a measure of the gross value of industrial production in the Soviet Union. RDT&E: Research, development, testing, and evaluation. International Security, Fall 1989 (Vol. 14,No. 2) 0 1989by the President and Fellows of Harvard College and of the Massachusetts Institute of Technology. 101 International Security 14:2 I 102 up: ”Since1970,the Soviet Union has invested $300billion more in its military forces than we have.” The Central IntelligenceAgency (CIA) provides the most widely used set of U.S. government estimates of Soviet military spending. An alternative set is calculated annually by the Defense Intelligence Agency (DIA),the research arm of the Department of Defense (DoD). These are widely considered ”a~thoritative,”~ but in fact are increasingly suspect, as my analysis and Gorbachev’s recent announcement confirm. Claims that ”an acceleration in the growth of Soviet defense outlays” constituted a ”disquieting . . . index of both Soviet capabilities and intentions” were made throughout the late 1970s and early 1980s, but were based on incorrect estimate^:^ Since 1983, the CIA has acknowledged that Soviet weapons procurement growth has been flat since 1975, not increasing, and that the rate of growth in overall defense spending since 1975actually dropped, from 4-5 percent to 2 percent per year. Nevertheless the CIA has not made the necessary correctionsin its figures for more recent years, as I show below. For example, the CIA has pegged Soviet defense spending, as a percentage of Soviet gross national product (GNP), at 15-17 percent for recent years, but I show that the figure should be closer to approximately 8-10 percent. Until recently, the CIA regularly presented two major defense spending indicators. The first was a calculation of Soviet ME in both constant rubles and constant dollars, used: 1)to make comparisons with U.S. ME, in...