Research
Assessing Soviet Economic Performance During the Cold War: A Failure of Intelligence?
By Marc Trachtenberg, Texas National Securuity, February 08, 2018
Feb 21, 2018 - 10:50:37 AM

For years, scholars have argued that economists and the CIA failed to see that the Soviet Union's economy was headed toward collapse. But are they right?

The swift and peaceful collapse of the Communist order, first in Eastern Europe and then in the Soviet Union itself, was an extraordinarily important historical event, and people at the time were amazed to see the Soviet system end the way it did. But why did it come as such a surprise? Shouldn’t the experts in the West who had devoted their lives to the study of the Soviet Union have been able to see that such enormous changes were in the making?

Many observers felt that social scientists in general, and economists in particular, had failed, as Martin Malia put it, to understand “the deeper dynamics driving Soviet reality.” Their writings, in Malia’s view, had suggested that the Soviet system was perfectly viable. They had assumed that the Soviet Union was “just another” modern society — that it was “as much a going concern as its ‘capitalist’ adversary.” Viewing things through that social scientific lens, he thought, had prevented Western scholars from seeing how serious the USSR’s problems were; this was the main reason so many of them had “been so wrong about so much for so long.”1 Western economists in particular, he said, had been unable to see that the USSR had to deal with some very grave and perhaps even fatal problems; the more pessimistic line taken by some émigré Russian economists had mistakenly been dismissed out of hand. Mainstream economists in the West, he believed, had greatly overestimated Soviet economic performance; and had it not been for that, political scientists, sociologists, and historians would scarcely have painted such a rosy picture of Soviet performance in the areas they studied.2

Malia was by no means the only scholar writing after the collapse of Soviet Union to argue along those lines. Vladimir Kontorovich, for example, claimed flatly that Western specialists in this area had failed to “‘diagnose observable tendencies,’ such as the continued decline of economic growth rates.”3 According to Igor Birman, another émigré economist — and one much admired by Malia — it was “only in 1981, or maybe in 1982,” that people began “talking about problems within the Soviet economy.”4 Even today, many observers still take it for granted that the economics profession, and indeed scholars more generally, essentially missed what was going on in the USSR — a major failure, given the importance of the issue.5

And it was not just academic economists who were criticized for their supposed failure to understand what was happening in the USSR. The economic analysis produced by the CIA, it was said, had also failed to bring out how serious the Soviet economic problem was. Sen. Daniel Patrick Moynihan, himself a former academic, was by far the most prominent critic. “For a quarter century,” he wrote, “the C.I.A. has been repeatedly wrong about the major political and economic questions entrusted to its analysis.” For thirty years, according to Moynihan, “the intelligence community systematically misinformed successive Presidents as to the size and growth of the Soviet economy.” It had portrayed the USSR “as a maturing industrial society with a faster growth rate than the United States,” a country “destined, if the growth rates held, to surpass us in time, and in the interval well able to sustain its domestic military and its foreign adventures.” The Soviet economy, he said, was thought to be roughly “three times as large as it turned out to be.” That “was the conventional wisdom among economists,” but the fact that economists had taken that view was scarcely an excuse, since “the C.I.A. was meant to do better.”6

Indeed, in Moynihan’s view, the CIA had done such a poor job in this area that he wanted to abolish the agency. The CIA, he repeatedly claimed, had utterly failed to see how serious the USSR’s economic problems were. “For 40 years,” he wrote in 1990, “we have hugely overestimated both the size of the Soviet economy and its rate of growth. This in turn has persistently distorted our estimates of the Soviet threat — notably, in the 1980s when we turned ourselves into a debtor nation to pay for the arms to counter the threat of a nation whose home front, unbeknownst to us, was collapsing.”7 Moynihan later boasted that he had been able to see as early as 1979 that “Soviet economic growth was coming to a halt” and that “the society as well as the economy was sick.” “But our intelligence community,” he said, “just couldn’t believe this. They kept reporting that the economy was soaring!”8

In the public discussion, and to a certain extent even in the scholarly literature, such claims were treated as established fact. “As the Bay of Pigs was to intelligence operations,” the columnist William Safire wrote in the New York Times in 1990, “the extended misreading of the Soviet economic debacle is to intelligence evaluation.”9 According to a 1992 article in the Wall Street Journal, the CIA’s track record “on the really big developments” was “hit-or-miss at best,” with “the downward spiral of the Soviet economy” counting as one of the “more spectacular misses.”10 In 1994 a Newsweek columnist noted in passing that the CIA story was “one of repeated intelligence failures,” culminating in the “monumental miscalculation of the size of the Soviet economy, which the CIA judged to be three times as big as it really was.”11 And in 1995 the Washington Post columnist Mary McGrory asked rhetorically whether any government department had “goofed up more than the Central Intelligence Agency”: “Their most egregious and expensive blunder about the Soviet economy we are still paying for.”12 The same basic point was made by a former CIA officer, Melvin Goodman, in 1997; it was not until the mid-1980s, Goodman wrote, that the CIA “finally began to report lower growth rates for the economy.” The CIA, he wrote, “completely misread the qualitative and comparative economic picture and provided no warning to policymakers of the dramatic economic decline of the 1980s.”13 And some leading scholars also took the view that “CIA estimates dramatically underreported the severity of the decline that preceded Gorbachev and accelerated during his leadership.”14

The economic analysis produced by the CIA, it was said, had also failed to bring out how serious the Soviet economic problem was.

It was not just the Americans, the argument ran, who had failed to understand what was going on in the USSR. The Soviets themselves, it was commonly argued, had “reason to be confident in their economy,” at least until around 1975; it was only later that “serious weaknesses” showed up.15 Moscow, according to the well-known historian Christopher Andrew, for example, “was in economic denial.” “Though the naïve economic optimism of the Khrushchev era had largely evaporated,” he wrote (referring to this period), “the ideological blinkers which constricted the vision of Brezhnev, Andropov and other Soviet true believers made it impossible for them to grasp the impossibility of the increasingly sclerotic Soviet command economy competing successfully with the market economies of the West.”16 Soviet leaders, according to O.A. Westad, another distinguished scholar, were “cushioned from the grim reality of technological backwardness and lack of productivity by what today’s Russian economists call a political economy of illusions.”17 Because of the nature of the Soviet system, according to Robert English, a leading specialist in this area, the Politburo, at least until the late 1980s, was not “subject to anything like the pressures that would weigh on the leaders of a pluralistic state in similar economic straits”; Soviet leaders could thus feel, until the very end, that the system was stable and that strategic retreat was not their only option.18 Part of the problem, it was sometimes said, was that the leadership relied on inflated figures generated by its own bureaucracy; it therefore had little sense for what was really going on. “For all one knows,” Walter Laqueur wrote, “the Soviet leaders (certainly under Brezhnev) were as ignorant as the Sovietologists about the real state of the economy, because they were misled by their underlings, who, in turn, were misinformed by the local informants.”19 Or maybe the regime simply did not want to know the truth — that it was determined to turn a blind eye to the country’s problems and to pretend, even to itself, that nothing was really wrong.20

The goal here is to examine some of these arguments in the light of the massive body of evidence we now have bearing on the subject. This, of course, is not the first time these issues have been dealt with. A number of writers have defended the performance of Western economists specializing in this area; Gertrude Schroeder’s “Reflections on Economic Sovietology” (1995) is of particular interest in this context.21 There is, moreover, a certain body of work dealing with — and mainly defending — the CIA’s work on the Soviet economy.22 But those studies of the CIA’s performance focused mainly on the mid- and late 1980s. The focus here, however, will be on an earlier period:  the period from the mid-1960s to about 1985. The goal is to give some feel for the sort of thinking that went into the economic assessments, both on the part of the CIA analysts and their academic colleagues (who, it is important to note, were part of the same intellectual community). I want to show, in fact, how impressive that thinking was, how early the key ideas took shape in those circles — and indeed how the Soviets themselves came to approach the problem in much the same way.

What is the point of doing this kind of analysis? The aim is not just to set the record straight as a kind of end in itself. The story is worth telling only because it has a certain larger importance. For one thing, the findings here have a major bearing on how the later Cold War is to be understood. A sense for how serious the USSR’s economic problems were, to the extent that it was shared by the political leadership, was bound to play a key role in shaping policy on both sides. That basic point needs to be kept in mind as we try to make sense of great power politics not just in the late 1980s but in the whole period from 1963 to 1991.

But beyond that the story tells us something important about the way the American political system works. We like to think that when policy issues are discussed in democracies like our own, intellectual standards are maintained because people are held accountable for making claims that turn out to be baseless. What this case suggests, however, is that there is much less accountability in our system than people realize — even on issues of fundamental political importance, and even when the evidence is readily available.

Measuring Soviet Economic Performance

Was it true, as many observers have claimed, that academic economists had failed to see what was going on with the Soviet economy, that the CIA analysts had presented much too rosy a picture, and that the Soviet leadership itself did not really understand what was going on? If true, that conclusion would have a major bearing on how the period should be interpreted. But is it in fact correct?

In a word, the answer is no. There is, for example, no basis for the claim that Western economists had failed to “‘diagnose observable tendencies,’ such as the continued decline of economic growth rates.”23 Experts in this area had little trouble recognizing that the Soviet growth rate was falling. It was widely understood by the mid-1960s that the Soviet economy was growing less rapidly than in the past. As the CIA’s leading expert on the Soviet economy, Rush Greenslade, pointed out in 1966, “the slowdown of economic growth in the U.S.S.R. is now a well-known story.” Abram Bergson, professor of economics at Harvard and the most prominent scholar working in this area, referred to it in a 1966 roundtable as a “very familiar fact.”24 That general point, moreover, was commonly noted in the press at the time. Even a casual reader of the New York Times — someone who merely glanced at the headlines — could scarcely fail to note that the Soviet growth rate had declined. (See Table 1.) Subsequent CIA calculations simply underscored that basic point. The growth rate was worse in the early 1970s than it had been in the late 1960s; it was worse in the late 1970s than it had been in the first part of that decade; and in the early 1980s it was lower still. (See Table 2.) As one scholar put it in 1995 looking back on this whole period: “The Soviet economy seemed to be gradually running out of steam, being dragged to stagnation and decline by some inexorable underlying process.”25