Revenge of the Skeptics

The Impoverished Superpower: Perestroika and the Soviet Military Burden, edited by Henry S. Rowen and Charles Wolf, Jr., San Francisco: ICS Press, 350 pages, $22.95

In March 1988, a conference at the Hoover Institution brought together a group of maverick analysts who had reached a common conclusion: The economy of the Soviet Union was much smaller than Central Intelligence Agency statistics indicated.

The Impoverished Superpower: Perestroika and the Soviet Military Burden, edited by Henry S. Rowen and Charles Wolf, Jr., is a collection of the papers presented at that conference more than two years ago. The book stands as a tribute to Rowen, now assistant secretary of defense, and Wolf, dean of the graduate school and director of international economic studies at the Rand Corp. For years, these two scholars have diligently pointed out that a country with a GNP only about a third as large as that of the United States could not continue to invest its resources so heavily in the military sector without bankrupting the entire economy.

At this point everyone—Mikhail Gorbachev in particular—knows Rowen and Wolf were right. The Soviet Union is unraveling before our eyes as monetary dysfunction and consumer shortages serve to fan the fires of social protest. The country is no longer economically viable; can political upheaval be far behind?

All of this seemed much more remote in early 1988, when people such as Swedish economist Anders Aslund were suggesting that the growth rate of the Soviet economy was stagnant during the first half of the 1980s or possibly even negative. (CIA estimates pegged average Soviet GNP growth at 1.9 percent a year from 1981 to 1985). Aslund writes the lead article for the book and sets forth the fundamental question: "How Small Is Soviet National Income?" Aslund cites the impact of hidden inflation and wholly unreliable Soviet statistics and warns about their distorting effects on Western attempts to calculate Soviet productivity. "A complete reassessment of Western estimates of Soviet economic aggregates is urgently needed," he asserts.

Echoing Aslund's concerns, Richard E. Ericson of Columbia University invokes the work of two Soviet economists, Grigorii Khanin and Vasilii Seliunin, to make the argument that the purported achievements of past decades of Soviet rule may have been vastly overstated through the use of "cunning figures" having little relationship to economic reality. Ericson's analysis of Khanin and Seliunin's work is objective and scholarly; he does not automatically embrace their methods or conclusions. Ericson does, however, point out that if these Soviet economists are correct in their assessment of their country's economic performance over the last 20 years, the implications are staggering:

"Given the [Khanin and Seliunin] indexes implying that Soviet GNP is only about one-half to two-thirds what the CIA believes, the direct Soviet defense burden must be somewhere between 25 and 30 percent of GNP. Thus the military places a greater burden on the development of the economic system than is generally believed in the West, further aggravating the now widely acknowledged economic slowdown."

The decrepit state of the Soviet economy, the radical reforms Gorbachev has undertaken, the dismal prospects for perestroika—it all makes eminent sense when we begin to fully comprehend the enormity of the burden Soviet military spending has placed on that country's dwindling capacities.

David F. Epstein enlarges the concept of Soviet military spending in his paper to include activities that impose extra costs on the Soviet economy but are not included in CIA defense estimates. Specifically, he looks at dual-use goods that accommodate civilian needs but are designed to meet military demands. He notes, for example, that Soviet dry-cargo ships are roll-on, roll-off ships, which means that they are military craft first. Soviet airliners are likewise outfitted for use as military transport planes. "Thus we should, in principle," Epstein states, "try to attribute to the military not only the additional costs of militarily useful designs, but the costs of providing peacetime services and the costs of building a wartime reserve in excess of civilian needs."

Encapsulating the essence of the Soviet economic condition, Christopher M. Davis offers his own assessment in an article titled, "The High-Priority Military Sector in a Shortage Economy." Davis declares at the outset that Kremlin planners persisted in their efforts to increase Soviet military power despite declining growth rates of national income and productivity, shortages of goods and services, and recurring poor harvests. Davis verifies the priority given to the military sector in the allocation of scarce internal Soviet resources. At the same time, he notes that the traditional protection given to military needs is no longer a sufficient shield against production disruptions and shortages of inputs.

In the meantime, what has happened to the Soviet infrastructure? It's clear now that military spending was eating up what little was available to take care of the needs of Soviet consumers over the last two decades; what about spending for capital investment? Boris Z. Rumer of the Harvard University Russian Research Center explains in his contribution that Gorbachev's original plans for improving the infrastructure of the Soviet Union have all come to naught. Gorbachev, like most of his predecessors, started out quite enamored with the idea of investing heavily to modernize factories, upgrade production capabilities, and improve the quality of Soviet manufactured goods. But, according to Rumer:

"The Soviet Union's attempt to launch a great investment surge has miscarried because there is too much inertia in the investment sphere and too little prior preparation of the economy as a whole to allow such a violation of the investment rhythm. Ill-advised tampering with that system is fraught with serious consequences, including chaos in the investment sphere of the economy."

Chaos is a word increasingly used when speaking about the Soviet Union. Even the CIA, which for so long has had a tendency to sugarcoat Soviet economic statistics, has finally acknowledged that things are not going well over there. In a recent appearance before the Joint Economic Committee, the CIA, in conjunction with the Defense Intelligence Agency, offered a report entitled, "The Soviet Economy Stumbles Badly in 1989." The two intelligence agencies stipulate in the report that the Soviet economy is in an unstable state and that "a single major event could lead to a substantial drop in output and bring about chaos in the distribution of both producer and consumer goods."

Perhaps the early renegades of Soviet economic research will take some satisfaction in the realization that the CIA has come around to their way of thinking. Igor Birman, a Soviet emigré who started sounding the alarm about Soviet internal budgetary and economic problems nearly a decade before most everyone else, has had his work publicly vindicated.

But no one takes real joy in seeing the Soviet economy and the welfare of the Soviet people collapse into terminal misery. There seems no way out for Gorbachev at this point; history will decide the fate of Russia's long encounter with communism. We can only wonder, though, how the West might have behaved differently in the intervening years if our leaders had acted on the knowledge brought to light by this group of independent-minded economists: that Moscow was betting all its worth on being the world's most powerful and intimidating military power—and destroying itself in the process.

Judy Shelton is a research fellow at the Hoover Institution and author of The Coming Soviet Crash.