What happened next is told here from the personal papers of Vitalii Kataev, a senior Soviet defense industry manager and arms control specialist. On 21 November 1986, the party Central Committee approved a resolution “On increasing the openness of the military activity of the USSR.” Formally, the initiative came from Vladimir Petrovskii, deputy foreign minister for disarmament (the foreign ministry was led at the time by Eduard Shevardnadze, later president of Georgia). We don’t have the exact words of the decree, but the Kataev papers include a commentary by Oleg Beliakov, Central Committee secretary for the defense industry.[402] “In the opinion of the USSR Foreign Ministry,” Beliakov wrote, increased openness “would allow the Soviet side to take up an offensive position in questions of military activity in international forums, and not allow speculation that is inimical to us about the lack of sufficient information on these questions.” A handwritten addition, part of it torn away, goes on to describe the then current figure of 19 billion rubles as “unconvincing” from the standpoint of Soviet claims to strategic parity with the United States.
The Politburo commissioned a group of four to report back on ways and means of implementing greater openness. The four were Yurii Mashukov and Valentin Smyslov (deputy heads of Gosplan), Nikolai Yemokhonov (deputy head of the KGB), and Marshal Sergei Akhromeev (chief of the armed forces general staff).[403] We’ll come across Akhromeev and Mashukov several times more.
Six months passed without progress. In April 1987, Central Committee secretary for the defense industry Beliakov reported the reason for the hold-up: “Gosplan considers it impermissible to publish the factual size of outlays on the defense activity of the USSR, but it does not propose any way out of the situation created as a result.”[404]
There must be some uncertainty as to the original source of the resistance to disclosure. While Beliakov blamed Gosplan, a note by Kataev blamed the military on the grounds that “traditionally the military determined the level of secrecy in the country.”[405] Whether or not this was generally true, Kataev’s recollections make clear that on this issue, a chief opponent of disclosure was Marshal Akhromeev, the country’s senior serving military officer.
According to Kataev, Akhromeev based his resistance on several arguments. His starting point was that, if the published figure for Soviet defense outlays was not credible, the available secret figures were little better. Because of omissions, they too understated the real cost of Soviet military activities by a large margin. To publish them would not help; they would raise many more questions than they would answer. Akhromeev feared the public reaction within the Soviet Union:
Who would believe that the USSR had such a small military budget? Among ordinary people, among the Supreme Soviet deputies, questions would immediately arise for the country’s leaders and for the military: how, on such a small budget, was it possible to secure parity with the Americans, whose budget was many times larger? It must follow that the leaders are deceiving the people under the cover of secrecy.[406]
Akhromeev also feared international repercussions:
A comparison of the budgets of the USSR and USA would prompt the thought that the claims of the USSR’s leadership to stand up to the USA “on equal terms” was a bluff, since the USSR budget was several times smaller than the budget of the USA. At the same time, the USSR’s leadership would be accused of deception.[407]
To respond to such concerns, the Soviet government would be forced to go into the secret figures in detail and explain exactly why they too fell short:
It would be complicated to answer such questions; one would have to go into the differences in labor and material costs in the USSR compared with abroad, the social channels of redistribution of part of the income in the USSR, and to compare the purchasing power of the ruble and dollar.[408]
Here, when Akhromeev mentioned “the social channels of redistribution of part of the income in the USSR,” he evidently had the following idea in mind. Traditionally, the Soviet government raised substantial tax revenues from the production and sale of consumer goods to households, while subsidizing production and investment in the heavy and defense industries. To the extent that taxes on consumer goods were used to subsidize other sectors of the economy, relative prices faced by buyers were distorted: civilian consumer goods were priced above their production costs while machinery and weapons were priced below costs. Thus, large parts of the country’s military activities were actually paid out of sums earmarked for government support of the economy, not of the military. This seems to be what Akhromeev had in mind.
The result was that one ruble in the hands of Soviet military agencies had greater purchasing power over state products than a civilian ruble. But there was no comparable distortion of relative prices in the US economy. Using the prices prevailing in each country, therefore, the Soviet economy would appear to support a given level of military activity from a smaller consumer sacrifice than the US economy. To correct the appearance would require detailed comparison of the purchasing power of the two currencies, as Akhromeev remarked.
An aspect of the problem that Akhromeev did not consider is that the understatement of Soviet defense costs could not be corrected just by adding in the cost of direct subsidies to the Soviet defense industries. Accounting for direct subsidies was only the start of the problem. There were also indirect subsidies that lowered the prices paid for military activities. At first sight, for example, bread and meat subsidies did not look as if they had anything to do with defense. But they reduced wage costs for all lines of production, civilian as well as military. Possibly workers in the defense industries had privileged access to subsidized bread and meat, which others would have to buy at much higher prices in the urban markets. Privileged access to food subsidies would then disproportionately lower the cost of weapons. This too would have to be taken into the account. Most likely, the final effect of all the direct-plus-indirect subsidies on the relative costs of military and civilian lines of production could only be ascertained by actually removing them all and observing the results that would ripple through the economy.
Could this be done at all? Periodically, it is true, the Soviet authorities attempted to reset industrial prices in line with costs (this was called “price reform”), with the aim of restoring the loss makers to profitability and eliminating cross-subsidies. Price reforms were costly and arduous to implement, and the cross-subsidies always soon returned.[409] As of 1987, it was expected that the Soviet economic reforms being promoted by Gorbachev would include a comprehensive reform of state prices, but no reform had yet been undertaken.
Related to the price of Soviet weapons in the internal defense market was the question of its export price. The Soviet Union priced its exports based not on production costs but on what the foreign market would bear. For that reason alone, production costs were a carefully guarded commercial secret. Akhromeev worried that having to publicize the subsidized ruble prices of Soviet weapons in the domestic market would undercut the prices and profits of the Soviet arms trade:
By publishing information about the low production cost of military equipment in the USSR, we will spoil our [international] military-technical cooperation, [where currently] we work at world prices and get a good profit.[410]
402
The Hoover Archive, Vitalii Leonidovich Kataev collection, Box 12, File 13 (“TsK KPSS. О predlozheniiakh MID SSSR po povysheniiu otkrytosti voennoi deiatel’nosti SSSR,” dated November 1986). The Kataev collection is based on a private archive. It is not always clear whether documents represent final or preliminary drafts, whether memoranda were sent, or whether recommendations were adopted. Sometimes this can be inferred indirectly.
403
Hoover/Kataev, 12/13 (“TsK KPSS. K porucheniiu о povyshenii otkrytosti voennoi deiatel’nosti SSSR,” dated April 1987).
404
Hoover/Kataev, 12/13 (“TsK KPSS. К porucheniiu о povyshenii otkrytosti voennoi deiatel’nosti SSSR,” dated April 1987).
405
Hoover/Kataev, electronic files, 2002c48_disk_04_mic.pdf (“Sovetskii VPK—vzgliad izvnutri,” page 22).
406
Hoover/Kataev, electronic files, 2002c48_disk_04_mic.pdf (“Sovetskii VPK—vzgliad izvnutri”). Akhromeev was a true Soviet conservative. In the end he could not reconcile himself with
407
Hoover/Kataev, 1/1 (“V. L. Kataev. Perechen’ arkhivnykh materialov. Kom- mentarii к nekotorym iz nikh,” undated).
408
Hoover/Kataev, electronic files, 2002c48_disk_04_mic.pdf (“Sovetskii VPK—vzgliad izvnutri”).
409
Bornstein, “The Soviet 1963 Industrial Price Revision”; Schroeder, “The 1966-67 Soviet Industrial Price Reform.”
410
Hoover/Kataev, electronic files, 2002c48_disk_04_mic.pdf (“Sovetskii VPK—vzgliad izvnutri”).