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http://www. csi .cia/studics/vol42no3/art7 .him I

(b)[31

Unclassified

[b)l1J

Determining the Cost and the Burden

Analyzing Soviet Defense Programs, 1951-1990
(U)
From the early days of the Cold War, the economic potential of the Soviet Union was a prime
intelligence question. In 1951, Max Millikan, the first director of the Office of Research and Reports
(ORR) in CIA, identified five objectives for foreign economic intelligence in support of US national
security:
• Estimating the magnitude of potential military threats to the United States and its allies by
calculating the level of military operations a potential enemy's economy could sustain .
• Estimating the character and location of future military threats by examining how the potential
enemy is allocating its resources.
• Assisting in judging the intentions of a potential enemy by monitoring changes in its economic
policies.
• Helping policymakers to reduce possible military threats by telling them how economic measures
could impair a potential enemy's economic capabilities.
• Assisting in the estimation of probable development of the relative strength of the East and West
blocs in the near term, assuming hostilities are avoided._!_
When Millikan formulated these objectives, the Korean war was on, and the possibility of conflict with
the USSR was real. At the same time, knowledge of the Soviet economy was sketchy. As Millikan put it,
his office in the first half of 1951 "was engaged in taking an inventory of its ignorance concerning the
economy of the Soviet Bloc."1 Soviet economic statistics were of little help. Publication of detailed
statistics had ceased for all practical purposes after World War II. Data on national aggregates such as
national income or industrial production greatly exaggerated real growth, while information on defense
outlays was limited to a single line of uncertain coverage in the state budget.
Within a few years, dozens of analysts were focused on putting together a picture of the Soviet economy
industry by industry. The military economics branch in ORR tried to estimate Soviet defense spending.
Another branch began reconstructing Soviet national accounts and compiling independent estimates of
real growth in the components of GNP--industrial and agricultural production, consumption, and
investment.

Building-Block Measures
Such was the beginning of CIA's building-block measures of Soviet national output and defense
expenditures. Essentially, this approach meant compiling estimates from the ground up by filling in the
empty boxes in accounting frameworks encompassing Soviet defense-related economic activity and total
economic activity. The work on Soviet GNP was able to borrow heavily from the pioneering work
carried out at Columbia, the RAND Corporation, and Harvard by a group of specialists on the Soviet