The Soviet Union does not conceal its expenditures for defense, because all mankind knows of the peaceable character of the Soviet Government.

-"Finansy S.S.S.R." ("Finance of the U.S.S.R.," a textbook for schools of higher education), Moscow, 1958, p. 285.

THE great development of modern weapons of mass destruction has caused enormous changes in military science including military doctrine and military strategy. However, these changes have not affected the concept of the military budget. Today, as in the past, the military budget, approved by appropriate organs of the state, indicates to a certain extent the defense effort of the nation. On the basis of the analysis below, it appears that, as a percentage of Gross National Product (for the U.S.S.R.- national income), the Soviet military budget is about double that of the United States.

The national defense power and the military budget are indivisible. Therefore it is important to establish the size of the Soviet military budget as a first step in the discussion of the problems of disarmament and the possible reduction of the defense budget. However, the solution of this problem is difficult because the Soviet Union is a closed society and has drawn one of the tightest security screens in history around its military affairs and related technology and industry upon which its military power is based.

The two paramount purposes of the obfuscation are, first, to sustain the Soviet propaganda front, such as the totally false claims of lowered military expenditures in recent years; and, second, to conceal the exact nature of their military build-up and the real size of the over-all military budget.

The curtailment of the published indicators concerning the Soviet military budget has taken place gradually. In the mid-1920s, Soviet military expenditures were divided into nine major groups, such as salaries, organizational and administrative expenses, clothing-subsistence costs, technical supply, cultural and educational expenses, finance of defense industry, etc., which were in turn subdivided into 79 individual entries. In the early 1930s, military expenditures were broken down into two groups. From the early 1940s to the present time, military expenditures are designated as expenditures of the Department of Defense.

The composition of the Soviet state budget and the relative position of military expenditures in it during the last 25 years is shown in the table on the following page.

According to Soviet statements, the Soviet armed forces comprised 5,763,000 men at the beginning of 1955. During the 1955-1958 period, the alleged cut in Soviet and armed forces was 2,140,000 men.[i] In spite of the considerable cut in the armed forces, military expenditures remain almost unchanged, except for 1956, following the 1955 cut. More specifically, in 1956 one billion rubles less were spent for military purposes than in 1955. The expenditures during the 1956-1960 period remained on almost the same level-between 9.3 and 9.7 billion rubles per year.

This steady level of military expenditures did not result in a reduction in Soviet military capabilities, but rather a shift in the balance between manpower and more advanced weapons including atomic and thermonuclear devices, rockets of all types and other modern weapons.

Later, in connection with the Berlin crisis, the planned cut in Soviet armed forces of 1,200,000 during 1960 and 1961 was not carried out and the armed forces were possibly even expanded. In this connection, expenditures for "Defense" were increased to 11.6 billion rubles in 1961, and 12.7 billion in 1962. In 1963 and 1964, "Defense" appropriations of 13.9 and 13.3 billion rubles were approved and represented 16.1 percent and 14 percent respectively of the total budget for these years.

STATE BUDGET OF THE U.S.S.R. IN 1940, 1950, 1955-1964 IN BILLIONS OF NEW RUBLES, IN CURRENT PRICES

Other State Ex- Year Total Social- Government pendi- Expend- National Cultural Defense Ex- tures itures Economy Projects pendi- Not INDUS- tures Shown TRY AM'T % AM'T % ONLY AM'T % AM'T % AM'T % AM'T %

1940 17.4 100.0 5.8 33.5 2.3 4.1 23.5 5.7 32.6 0.7 4.0 1.1 6.4 1950 41.3 100.0 15.8 38.2 7.8 11.7 28.2 8.3 20.0 1.3 3.4 4.2 10.2 1955 54.0 100.0 23.4 43.2 11.0 14.7 27.3 10.7 19.9 1.2 2.2 4.0 7.4 1956 56.3 100.0 24.5 43.5 12.8 16.4 29.2 9.7 17.3 1.2 2.1 4.5 7.9 1957 60.7 100.0 26.7 44.0 13.1 20.0 33.0 9.1 15.0 1.2 2.0 3.7 6.0 1958 64.3 100.0 29.0 45.2 13.7 21.4 33.3 9.4 14.6 1.2 1.8 3.3 5.1 1959 70.4 100.0 32.4 46.0 14.9 23.1 32.8 9.4 13.3 1.1 1.6 4.4 6.3 1960 73.1 100.0 34.1 46.7 15.6 24.9 34.1 9.3 12.7 1.1 1.5 3.7 5.0 1961 76.3 100.0 32.6 42.7 16.11 27.2 35.7 11.6 15.2 1.1 1.4 3.8 5.0 1962 82.2 100.0 36.2 44.1 14.81 28.9 35.2 12.7 15.4 1.1 1.3 3.3 4.0 19631 86.2 100.0 34.5 40.0 15.5 31.0 36.0 13.9 16.1 1.1 1.3 5.7 6.6 19641 91.4 100.0 38.7 42.3 15.52 32.8 35.9 13.3 14.6 1.1 1.2 5.5 6.0

Sources: For 1940, 1950, 1955-1960: Gosudarstvennyy byudzhet S.S.S.R. i soyusnykh respublik, Statisticheskiy Soornik (State Budget of the U.S.S.R. and Union Republics, Statistical Annual), Moscow, 1962. p. 18-20. For 1961 and 1962: Narodnoye Khozyaistvo S.S.S.R. v 1962 godu, Statisticheskiy Ezhegodnik (National Economy of the U.S.S.R. in 1962, Statistical Annual), Moscow, 1963, p. 635. For 1963, Pravda, Dec. 14, 1962, p. 1. For 1964, Pravda, Dec. 20, 1963, p. 1.

1 Planned. 2 Assumed.

The alleged decline in the ratio of defense expenditures to total expenditures is widely publicized and used by the Soviet Government. For example, "The Soviet Union systematically, from year to year, cut appropriations for military purposes in the State budget. The percentage of this appropriation for 1960 constitutes only 12.7 percent of all expenditures in the State Budget as compared to 19.9 percent in 1955."[ii] "In the imperialist countries like the U. S., the military budget for 1961/62 was 61.4 billion dollars or 77 percent of all expenditures of the budget."[iii]

The purported low percentage of Soviet appropriations going to the military can be explained by the fact that the State Budget includes appropriations which finance not only all branches of the economy but also include cultural undertakings and a vast group of other appropriations not covered by the budgets of Western democracies. Furthermore, it also includes the budgets of the Union-republics and local budgets. In short, the Soviet State budget absorbs more than one-half of the national income.[iv]

Moreover, it should be stressed that the official expenditures for defense, published every year, represent only a part of Soviet military outlays. In other words, they represent the direct military part of the State budget which is set aside for Rocket Troops, Air Force, Ground Forces, Navy, Air Defense and rear services of all types and kinds of the armed forces, and spent in the following ways:

(a) payments established for Army, Air Force and Fleet (Navy) armaments, ammunition and engineering, fuel and lubricants, rations, clothing and other valuable materials necessary for combat readiness of troops; (b) financing of capital construction and industrial enterprises of the Ministry of Defense; (c) military requirements, political training and housing and recreation facilities for units of the armed forces; (d) allocation of pay and allowances for military personnel of the armed forces.

Other military expenditures-defense industry, strategic defense materials and food reserves, atomic research, war veterans among others-are concealed in another section of the State budget, and are supplementary to the official military budget. Real military expenditures are therefore much higher than is shown in the annually published Soviet Defense budget.

It must be emphasized that we do not know the exact magnitude of the sums concealed within the State budget of the U.S.S.R. We do know, however, the type of measures for which these sums have been earmarked and in what part of the State budget they are reflected. Many other factors which enter into the picture, such as Soviet budgetary history, financial legislation and, particularly, Soviet budgetary practices, also help us to estimate the size of the hidden sums in question.

Under the heading "National Economy," besides expenditures for basic branches of the economy such as agriculture, transportation, communal economy, etc., there is also one figure for the financing of industry, which in fact includes 21 branches of industry, four being for military purposes.

Ever since the beginning of forced industrialization, the defense industry has been one of the most privileged branches of the Soviet economy. There has been a constant rise in the percentage allocated in the budget for the development of the defense industries as compared with allocations for the development of industry as a whole: in 1923/24-1926/27 it was 11.2 percent; in 1937, in conformity with two sources, between 13.8 and 18.5 percent; and in three years of the Third Five Year Plan (1938-1940) 29.0 percent.

After the Second World War, all traces of the extent of defense-industry financing vanished. Moreover, for the first time in many years the published Soviet budget for 1964 does not indicate funds for the financing of industry and construction as a whole, although for 1964 and 1965 funds for the chemical industry and certain other industries are given. One gets the strong impression from the 1964 State budget that the Soviet authorities try to render figures concerning the Soviet economy as confusing as possible.

The resources allocated to the defense industry are probably growing in absolute terms, because of the increasing development of new weapons.[v] However, according to the author's estimate, the ratio of defense industry to total allocations for the development of industry and construction as a whole has not changed in comparison with the years 1938-1940, but remains 29.0 percent.

During 1955-1962, the ratio of funds for industry and construction to the total allocation for the national economy was 43.2 percent. For 1963 the planned figure was 40 percent. For 1964 we assume for the industry the same percent. In other words, in 1964, out of 38.7 billion rubles allocated to finance the national economy, 40 percent or 15.5 billion rubles are earmarked for industry as a whole, of which 4.5 billion rubles, or 29.0 percent, was for the defense industry.

The Soviet Government attaches exceptional importance to strategic defense material and food reserves and takes all possible measures to increase them, because "the concentration of large quantities of materials and food reserves in the hands of the government is necessary in the interest of strengthening the country's defense potential."[vi] On the eve of World War II, defense reserves included strategic raw materials such as oil and non- ferrous metals as well as fuel and food supplies. Today the number of items encompassed is considerably greater. They include "substantial reserves of power potential, strategic raw materials, food reserves and reconstruction materials, to prevent any delays in supplying the defense industry and the armed forces."[vii]

State defense reserves constitute a special fund and their custody is centralized nationally. In 1946 two all-Union ministries for materials and food reserves were created to replace the Main Administration of State Reserves of the Council of Ministries of the U.S.S.R. In 1948 these ministries were merged into one-the Ministry of State Food and Material Reserves. As of 1953, the State Planning Committee of the Council of Ministers was charged with these functions. Toward the end of the 1930s, the allocations for strategic materials and food reserves were treated separately in the published data concerning the State budget. At present they are concealed under the State budget heading "National Economy" and "Other Expenditures Not Shown." For the last nine years (1955-1963) the latter category has averaged 3.9 billion rubles a year.

Funds of the Council of Ministers of the U.S.S.R. and Union Republics are basically used to finance the national economy. It is possible that a part of these funds are used for war industry or research purposes, although the exact figure is unknown. In this connection it should be remembered that in 1959 and 1960 the increase of circulating capital and reserves was 12.8 and 12.9 billion rubles respectively. In 1961 and 1962, for the same purposes, 17.6 and 16.5 billion rubles respectively were allocated. It may be asked what part of these funds is going for strategic defense and food reserves.

Allotments for defense reserves have steadily increased. The Fourth Five Year Plan (1946-1950), for example, called for state defense reserves to total "about 6 percent of the Gross National Product."

The 1964 appropriation for strategic defense materials and food reserves is estimated at 5.4 billion rubles which constitutes 3 percent of expected national income of the U.S.S.R. for 1964 (see section VI). However, this sum also includes funds for the formation of financial reserves.

The sum of 32.8 billion rubles allocated in 1964 for social and cultural projects also includes expenditures for atomic energy research and pensions to war veterans.

In the Soviet Union science receives exceptional attention; the best scientific talent is concentrated in the area of new weapons systems. Science, of course, is thoroughly regimented and totally subordinated to Party and State objectives. At any given moment, the entire scientific establishment, with unlimited financial resources, may be committed to the solution of scientific and technical problems deemed to be most important, and most closely connected with the country's war potential.

"It is a well-known fact," Mr. Khrushchev has said, "that the Soviet Government never hesitates to spend money for the development of science."[viii] Probably for the first time in history there has been a total acceptance of the fact that, in a very genuine and realistic sense, knowledge is power. With this in mind, the Soviets have trained and will continue to train an army of scientists and technologists in the fields of basic and applied research, as an aid to economic growth and military power.

In 1961 the Soviet Government created a new super agency charged with the coördination and control of all scientific research in the country. The chairman, Engineer K. Rudnev, who was working in the field of armaments, was named to head the new agency with the rank of Deputy Chairman of the Council of Ministers. It is significant, too? that the new president of the Academy of Sciences, Academician M. Keldysh, was formerly director of research at the then top secret "Research Institute No. 1" of the Ministry of Aircraft Industry, which was engaged in Soviet rocket development during World War II. He was charged with the solution of major scientific and engineering development problems in the area of missile and space technology.

Scientific research is also centralized to the utmost. In 1926-27 the Union budget financed 24.4 percent of expenditures for science. In 1960 the Union budget financed 80 percent of all expenditures for science, and the figure is probably even higher today. Appropriations for basic scientific research are rapidly increasing. In 1940, just prior to World War II, 0.1 billion rubles were spent on scientific research, which represented 0.6 percent of all expenditures of the national budget. After World War II the budget expenditures for basic science rose from 1.2 percent in 1950 (0.5 billion rubles) to 3.9 percent in 1964 (3.6 billion rubles)-a sevenfold increase.

What part of the expenditures for science has a military character? In the Soviet Union, the problem of the delimitation of military and non-military expenditures is facilitated by the fact that any peaceful undertaking, notably in the field of scientific research, is considered with regard to its influence on national defense. Almost 40 years ago the Defense Commissar, M. Frunze, wrote: "In any new undertaking-economic, cultural or other-one must always ask the question: What relation does this undertaking have to the task of protecting the nation? Is there any possibility of letting it serve specific military purposes also without impairing peaceful goals?"[ix]

Frunze's pronouncement is often cited in the Soviet press by authors writing on military subjects as a pattern for organizing work in any branch or area of the Soviet economy, culture, etc. Thus, all expenditures for scientific research are, to a greater or lesser extent, of a military character. However, we may attempt to divide these expenditures into two categories, although no direct information for such a division is available.

In the State budget for 1950-1957, the percentage of non-itemized expenditures increased from 42.6 percent in 1950 to 60.4 percent in 1957. If we assume that the percentage of concealed allocations for science in the years 1958-1964 is the same as in 1957, this means that in 1950-1964 expenditures for military research increased from 0.3 billion rubles in 1950 to 2.2 billion rubles in 1964, representing a sevenfold increase. This increase lay primarily in the field of atomic energy.

The Soviet Union continues to bear a financial burden from past wars, paying veterans' pensions as do the Western nations. While this sum is not a direct military expenditure, it needs to be included for comparative purposes. At the beginning of 1963, the number of war veterans and their dependents stood at 5,550,000. We estimate that expenditures under this heading in 1964 will be 2.0 billion rubles.

A number of other activities are also financed by expenditures concealed in the national budget, and although they are not of a direct military nature, they support far-reaching military and political objectives. These activities include espionage, intelligence, financing of subversive activity in all its forms, extending "aid"-military, economic, technical and scientific-which includes the training and sending of "experts" and "technicians" abroad, and extending loans to underdeveloped countries.

For example, the "State Government Expenditures" entry, which totaled 1.1 billion rubles in 1964, is an historical source of espionage and intelligence money in the Soviet budget. This entry includes the sums for upkeep of central government organs which include the Committee for State Security of the Council of Ministers, the agency responsible for espionage and intelligence. According to official Soviet sources, the expenditures for espionage and intelligence services were classified as "expenditures not to be made public" in 1923-24, "Secret expenditures" in 1924-25, and "special expenditures of the Unified State Political Administration" (OGPU) in 1925-26. We do not know how much is allocated for this purpose now.

Some expenditures for defense are not reflected in the national budget-for instance, the surplus of revenue over expenditures, which is typical of the Soviet budget and for the last 10 years (1955-1964) averaged 2.2 billion rubles a year.[x] As a rule, these surpluses are not carried over into the following year's budget. It can be assumed that half that surplus is used for espionage, the financing of Communist parties in other countries, and other subversive activities in all vulnerable parts of the world. In 1964, therefore, this sum amounted to 1.0 billion rubles.

In addition to the State budget of the U.S.S.R., another means of financing measures of a military character is provided by the resources of industrial defense enterprises. Under the Soviet "cost-accounting" system, each enterprise may retain a portion of its resources, including "profits." In 1964, it is estimated that that these hidden resources allocated for defense industry amounted to 3.5 billion rubles, or 29.0 percent of the 11.9 billion rubles from the resources of industrial enterprises.[xi]

Summing up all expenditures for military purposes, the possible size of the military budget of the Soviet Union is determined as shown below.

SUMMARY TABLE OF SOVIET MILITARY EXPENDITURES IN 1964 IN BILLIONS OF RUBLES

Amount Percent 1. Direct Military Expenditures (a) Military Budget 13.3 41.7 2. Indirect Military Expenditures (a) Defense Industry 4.5 (b) State Defense Reserves 5.4 (c) Scientific Research in the Military Field 2.2 (d) Pensions for War Veterans 2.0 Total 14.1 44.2 3. Expenditures not included in the State Budget (a) Excess of Revenue over Expenditures 1.0 (b) Defense Industry 3.5 Total 4.5 14.1 Sum Total 31.9 100.0

This table shows that concealed expenditures of a military nature in the State budget are more than twice as high as the open expenditures. It is the author's estimate that 14.1 billion rubles are concealed in the 1964 budget (defense industry, state defense reserves, scientific research and war veterans) making the total military support funds 27.4 billion rubles or 64.3 percent of the Union budget, which is 42.6 billion rubles for 1964.

Recognizing that the validity of Soviet national income data is subject to question, it will nevertheless be useful to show the defense budget as a percentage of national income, which in 1962 was 162.9 billion rubles. If we assume an annual increase of 5 percent, the national income in 1964 may be estimated at 179.5 billion rubles. Expenditures for defense in 1964 are estimated at 31.9 billion rubles, which is 17.8 percent of the national income. In the author's view, this estimate is a conservative one. For purposes of comparison, it is estimated that the G.N.P. of the United States for 1964 will be $623 billion and that the expenditures for national defense for 1964 (F.Y.) will be $56 billion, or 9.0 percent of the G.N.P.

It should be noted that many factors other than the size of the military budget contribute to the war potential of the Soviet Union without requiring special expenditures. Among these are:

Adjustment of the Soviet economy in peacetime to military purposes. A long time ago, the Third All-Union Congress of the Soviets (1927) passed a law regarding "building of all other [read: non-military] industries vis-à- vis requirements in time of war."[xii] This is in conformity with Soviet practice in which "the development of industry, agriculture, and transportation simultaneously serves to strengthen the war potential of the country."[xiii]

Since World War II, great attention has been paid to the problems of the regimentation of the civil population and civil defense operations. At present, the All-Union Society for Coöperation with the Army, Air Force, and Navy has embraced tens of millions of people, who are being trained in many fields of direct military use.

Price formation and price policy have encouraged the low level of prices for articles that are destined for the armed forces, especially armaments and equipment.

In connection with the Soviet military budget, there arise many other no less important questions that need special consideration, namely: What kind of relationship exists between military potential and the defense budget? Where are the areas of strain in the Soviet military budget? Is it true that the Soviets may find it increasingly difficult both to keep up with the West in the international power struggle and to modernize their economy and raise living standards?

It is not the purpose of this article to answer these questions; however, we should avoid the danger of underestimating Soviet willingness to give the highest priority to military programs. The Soviet budget always is strained to the utmost, but at the 1960 session of the Supreme Soviet Khrushchev said that "if necessary, we can raise the military budget by tens of billions of rubles."[xiv] This was not an empty boast. Later in a speech of July 8, 1961, addressed to graduates of the military academies, Khrushchev calmly announced that the current year's defense budget would be stepped up by a third, that is by 3.1 billion rubles.[xv] The same thing happened in 1962. Finance Minister V. Garbuzov simply informed 1,378 delegates at a joint session of the Supreme Soviet in the Grand Kremlin Palace that defense expenditures jumped from the 9.3 billion rubles originally planned for 1961 to 13.4 billion rubles for 1962.[xvi] This represents a 44 percent increase of direct military expenditures. In 1963, they rose again by 0.5 billion rubles. No question was asked; no doubt was expressed. None of the delegates mentioned the military budget. This has been a firmly established way of life in Soviet society for decades. Long before Goebbels, the people of the Soviet Union truly knew the meaning "guns instead of butter." For example, in 1934, direct military expenditures rose from 1,655 million rubles to 5,000 million rubles, or more than trebled. The increases of 1961, 1962 and 1963 showed that the Soviet Government is as able under Khrushchev as under Stalin to increase militant expenditures to any level desired.

[i] Pravda, Jan. 16, 1960, p. 3.

[ii] From "Appeal of the U.S.S.R. Supreme Soviet to Parliaments and the Governments of all Nations," in connection with the law which reduced the Soviet Armed Forces by 1,200,000 men at the beginning of 1960. Pravda, Jan. 16, 1960, p. 1.

[iii] Finansy S.S.S.R. (Finance of the U.S.S.R.), edited by D. A. Allakhkerdjan, Moscow, 1962, p. 311.

[iv] Finansy S.S.S.R. (Finance of the U.S.S.R.), No.1, 1963, p. 26.

[v] In order to increase control over military production, four ministries of defense industry were transformed in December 1957 into the following four committees of the U.S.S.R. Council of Ministries: Aviation Engineering, Defense Technology, Radio Electronics and Shipbuilding. These include the branches of industry forming the defense industry base, as well as the aerospace industry.

[vi] A. D. Kursky, Ekonomicheskiye osnovy narodno-khozyaist-vennogo planiovaniya v S.S.S.R. (Economic Principles of National Planning in the U.S.S.R.), Moscow, 1959, p. 30.

[vii] BSE, vol. 36, 2nd ed., 1955, p. 265.

[viii] Pravda, December 16, 1958, p. 7.

[ix] A. N. Lagovskiy, Strategia i ekonomika: kratkiy ocherk ikh vzaimnoy suyazi ivzaimnoyo vliyaniya (Strategy and Economics, Brief Essay on Their Interrelation and Interdependence), Moscow, 1957, p. 194.

[x] The Soviet State budget has been without deficit since 1924-1925, with the exception of the first three war years (1941-1944).

[xi] In 1964, financing of the national economy from resources of the enterprises themselves constitutes 29.800 million rubles. Pravda, December 17, 1963, p. 5.

[xii] Kommunisticheskaya partiya sovetskogo soyuza i stroitel' stvo vooruzhennykh sil (Communist Party of the U.S.S.R. and the Building of Armed Forces), Moscow, 1959, p. 231.

[xiii] Lagovskiy, op. cit., p. 200.

[xiv] Zasedaniye verkhovnogo soveta S.S.S.R. pyatogo sozyva, chetvertaya sessiya (Conference of the U.S.S.R. Supreme Soviet, Fifth Convocation, Fourth Session (January 14-15, 1960), Stenographic Report, Moscow, 1960, p. 47.

[xv] Pravda, July 9, 1961, p. 3.

[xvi] Pravda, December 9, 1961, p. 1.

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