Issues in East-West commercial relations

MISSING IMAGE

Material Information

Title:
Issues in East-West commercial relations
Physical Description:
Book
Language:
English
Creator:
United States -- Congress. -- Joint Economic Committee
Publisher:
U.S. Govt. Print. Off. ( Washington )
Publication Date:

Record Information

Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
aleph - 21633269
oclc - 4877639
System ID:
AA00022208:00001

Table of Contents
    Front Cover
        Page i
        Page ii
    Letters of transmittal
        Page iii
        Page iv
        Page v
        Page vi
    Table of Contents
        Page vii
        Page viii
    The setting: The Congress and East-West commercial relations
        Page 1
        Page 2
        Page 3
        Page 4
        Page 5
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
        Page 12
    Part I. East-West technology transfer
        Page 13
        Page 14
        Page 15
        Page 16
        Page 17
        Page 18
        Page 19
        Page 20
        Page 21
        Page 22
        Page 23
        Page 24
        Page 25
        Page 26
        Page 27
        Page 28
        Page 29
        Page 30
        Page 31
        Page 32
        Page 33
        Page 34
        Page 35
        Page 36
        Page 37
        Page 38
        Page 39
        Page 40
        Page 41
        Page 42
        Page 43
        Page 44
        Page 45
        Page 46
        Page 47
        Page 48
        Page 49
        Page 50
        Page 51
        Page 52
        Page 53
        Page 54
        Page 55
        Page 56
        Page 57
        Page 58
        Page 59
        Page 60
        Page 61
        Page 62
        Page 63
        Page 64
        Page 65
        Page 66
        Page 67
        Page 68
        Page 69
        Page 70
        Page 71
        Page 72
        Page 73
        Page 74
        Page 75
        Page 76
        Page 77
        Page 78
        Page 79
        Page 80
        Page 81
        Page 82
        Page 83
        Page 84
        Page 85
        Page 86
        Page 87
        Page 88
        Page 89
        Page 90
        Page 91
        Page 92
        Page 93
        Page 94
        Page 95
        Page 96
        Page 97
        Page 98
        Page 99
        Page 100
        Page 101
        Page 102
        Page 103
        Page 104
        Page 105
        Page 106
        Page 107
        Page 108
        Page 109
        Page 110
        Page 111
        Page 112
        Page 113
        Page 114
        Page 115
        Page 116
        Page 117
        Page 118
        Page 119
        Page 120
        Page 121
        Page 122
    Part II. Eastern exports to the United States and other Western countries
        Page 123
        Page 124
        Page 125
        Page 126
        Page 127
        Page 128
        Page 129
        Page 130
        Page 131
        Page 132
        Page 133
        Page 134
        Page 135
        Page 136
        Page 137
        Page 138
        Page 139
        Page 140
        Page 141
        Page 142
        Page 143
        Page 144
        Page 145
        Page 146
        Page 147
        Page 148
        Page 149
        Page 150
        Page 151
        Page 152
        Page 153
        Page 154
        Page 155
        Page 156
        Page 157
        Page 158
        Page 159
        Page 160
        Page 161
        Page 162
        Page 163
        Page 164
        Page 165
        Page 166
        Page 167
        Page 168
        Page 169
        Page 170
        Page 171
        Page 172
        Page 173
        Page 174
        Page 175
        Page 176
    Part III. Financing East-West trade
        Page 177
        Page 178
        Page 179
        Page 180
        Page 181
        Page 182
        Page 183
        Page 184
        Page 185
        Page 186
        Page 187
        Page 188
        Page 189
        Page 190
        Page 191
        Page 192
        Page 193
        Page 194
        Page 195
        Page 196
        Page 197
        Page 198
        Page 199
        Page 200
        Page 201
        Page 202
        Page 203
        Page 204
        Page 205
        Page 206
        Page 207
        Page 208
        Page 209
        Page 210
        Page 211
        Page 212
        Page 213
        Page 214
        Page 215
        Page 216
        Page 217
        Page 218
        Page 219
        Page 220
        Page 221
        Page 222
        Page 223
        Page 224
        Page 225
        Page 226
        Page 227
        Page 228
        Page 229
        Page 230
        Page 231
        Page 232
    Part IV. United States-Soviet agricultural trade
        Page 233
        Page 234
        Page 235
        Page 236
        Page 237
        Page 238
        Page 239
        Page 240
        Page 241
        Page 242
        Page 243
        Page 244
    Part V. Maritime practices
        Page 245
        Page 246
        Page 247
        Page 248
        Page 249
        Page 250
        Page 251
        Page 252
        Page 253
        Page 254
        Page 255
        Page 256
        Page 257
        Page 258
        Page 259
        Page 260
        Page 261
        Page 262
        Page 263
        Page 264
        Page 265
        Page 266
    Part VI. Problems and prospects
        Page 267
        Page 268
        Page 269
        Page 270
        Page 271
        Page 272
        Page 273
        Page 274
        Page 275
        Page 276
        Page 277
        Page 278
        Page 279
        Page 280
        Page 281
        Page 282
        Page 283
        Page 284
        Page 285
        Page 286
    Appendix
        Page 287
        Page 288
        Page 289
        Page 290
        Page 291
        Page 292
        Page 293
        Page 294
        Page 295
        Page 296
        Page 297
        Page 298
        Page 299
        Page 300
        Page 301
        Page 302
        Page 303
        Page 304
        Page 305
        Page 306
        Page 307
        Page 308
        Page 309
        Page 310
        Page 311
        Page 312
        Page 313
        Page 314
        Page 315
        Page 316
        Page 317
        Page 318
        Page 319
        Page 320
        Page 321
        Page 322
    Back Cover
        Page 323
        Page 324
Full Text




95th Congress l JOINT COMMITTEE PRINT
2d Session








ISSUES IN EAST-WEST COMMERCIAL

RELATIONS








A COMPENDIUM OF PAPERS

SUBMITTED TO TIE


JOINT ECONOMIC COMMITTEE

CONGRESS OF THE UNITED STATES














JANUARY 12, 197 N7








Printed for the use of the Joint Economic Committee


U.S. GOVERNMENT PRINTING OFFICE
WAStII INGTO'N ; 19711


36-144


For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402

































JOINT ECONOMIC COMMITTEE
(Created pursuant to sec. 5(a) of Public Law 304, 79th Cong.)
RICHARD BOLLING, Missouri, Chairman
LLOYD BENTSEN, Texas, Vice Chairman


HOUSE OF REPRESENTATIVES
HENRY S. REUSS, Wisconsin
WILLIAM S. MOORHEAD, Pennsylvania
LEE I. HAMILTON, Indiana
GILLIS W. LONG, Louisiana
PARREN J. MITCHELL, Maryland
CLARENCE J. BROWN. Ohio
MARGARET M. HECKLER, Massachusetts
JOIIN H. ROUSSELOT, California


SENATE
WILLIAM PROXMIRE, Wisconsin
ABRAHAM RIBICOFF, Connecticut
EDWARD M. KENNEDY, Massachusetts
GEORGE McGOVERN, South Dakota

JACOB K. JAVITS, New York
WILLIAM V. ROTH, JR., Delaware
JAMES A. McCLURE, Idaho
ORRIN G. HATCH, Utah


JOHN R. STARK, Executive Director

(I)











LETTERS OF TRANSMITTAL


JA\UAR:Y 12,1979.
To the Members of the Joint Economic Com mittee:
Transmitted herewith for use by the Joint Economic Committee, the
Congress, and the interested public is an assessment of current issues
in commercial relations between the United States and the Etastern
bloc entitled "Issues in East-West Commercial Relations." This col-
lection of papers and statistical materials is designed to serve the
committee and the Congress by providing an up-to-date body of data
and analysis on East-West economic issues.
The papers in this volume grew out of a Workshop on East-West
Commercial Relations requested by the committee and organized by
the Conaressional Research Service of the Library of Congress. The
emphasis of the compendium is on the question of technology transfer
and the financing of East-West trade. Materials on the problems and
potential of East European nations' exports, agricultural trade, and
maritime practices rond cut the volume.
Finally, we wish to take this opportunity to express our gratitude
to the Congressional Research Service for making" available the serv-
ices of John P. Hardt. Ronda A. Bresnick, and George D. Holliday,
who planned the original workshop, helped outline the research for
this volume and edited the individual papers.
It should be understood that the views contained in this study are
not necessarily those of the Joint Economic Committee nor of indi-
vidual members.
Sincerely,
RICITARD BOLLING.
Chairman, Join t Econorn c Cor m ittee.

JANUARY 8, 1979.
Hon. RICHARD BOLLIxa,
Chairman, Joint Economic Committee, U.S. Congress,
Washivqton, D.C.
DEAR MR. CHAIRnAN: Transmitted herewith is a collection of ma-
terials on trade and financial relations between the UTnited States
and the Eastern bloc entitled "Issues in East-West Commercial Rela-
tions." The volume includes studies by specialists at the Congressional
Research Service, the Commerce Department's Bureau of East-West
Trade, Department of Defense, Department of State, and academic
institutions. This collection of papers grew out of an April 1978
Workshop on East-West Commercial Relations that was sponsored
by the Joint Economic Committee and conducted by the Congressional
Research Service of the Library of Congress.
I'rr)








The study focuses on the questions of technology transfer and
the financing, of East-West trade that formed the heart of the Work-
shop agenda. Sections on the impact and potential of Eastern bloc
exports to the West, agricultural trade and maritime practices have
been included to round out this volume.
It 4hoild be clearly understood that the views expressed in these
paper are those of the individual contributors and do not necessarily
represent the position of the Joint Economic Committee, individual
members thereof, or the committee staff.
The Library of Congress made available the services of *John P.
Nlardt, Ronda A. Bresnick, and George D. Hollidav of the Congres-
sional Research Service, who organized the workshop, coordinated
and edited the volume, and contributed individual papers to it.
Edward .J. Jacobs of the committee staff provided valuable printing
and editorial assistance.
Sincerely,
JOHN R. STARK.
Eeecut'e Director. Joint Economir Corin7 ittee.
Eu closure.

TTE LTBPATaY OF CONGRESS,
CONGRESSTONAr RESEARCH SERVICE,
Washington, D.C., Janvary 3, 1979.
lTon. RICHIArCD BOLLIN
Ci, b;m n ,loint Econm eir Commit tee.
V.S. Congress.
Va.,?h nqton, D.C.
1) R MR. BOLLIT-N: During the 1970's. issues concerning East-West
CoM1 morcial relations were prominent on the congressional agenda. The
inereesed volume of U.S. trade with Communist countries has gen-
erated considerable debate and important policy decisions on various
aspects of East-West trade. The Export Administration Act of 1969
and subsequent amendments in 1974 and 1977 have focused attention
on the issue of transferring technology to the East. The Trade Act of
1974. with its Freedom of Emigration Amendment highlighted the
(piestion of MFN tariff treatment for Comnmnist countries and linked
it to human rights observance in those countries. Both the Trade Act
and Amendments to the Export-import Bank Act have changed the
aroundd rules for U.S. Government financing of East-West trade. Each
of the policy areas remain the focus of considerable congressional
attention.
On April 5. 197P. in response to the request of the Joint Economic
Coimniittee, the Congressional Research Service held a Workshop on
East-West Commercial Relations. The purpose of the workshop was
to identify the key issues in East-West commercial relations, raise
iestigons Yermane to conZressional policy interest or to legislation
coneernin *z East-We1 t relations. and generate discussion.
This study focuses on the issues of technology transfer and finance,
the iopics central to the workshop discussions. Chapters on agriculture
and maritime affairs have been added to highlight those important
iSsiles.





V

The workshop was chaired by Dr. John P. Itardt, Associate Director
of Congressional Research and Senior Specialist in Soviet Econoiai I,
and Dr. Kent 11. Hughes of the Joint Economic Committee stall'.
The compendium of papers was coordinated and edited by Ronda
Bresnick, George Holliday, and John Hardt of the Office of Senior
Specialists and Economics Division of CRS.
It is understood that the views contained in this study are not neces-
sarily those of the Congressional Research Service nor of the U.S.
Congress.
Sincerely,
GILBERT GUDE,
Director, Congressional Research Service.




















Digitized by the Internet Archive
in 2013


http://archive.org/details/issuewest00unit













CONTENTS

Page
Letters of Transmittal --------------------------------------------- iLi
ISSUES IN EAST-WEST COMMERCIAL RELATIONS
The Setting: The Congress and East-West Commercial Relations-
Ronda A. Bresnick ----------------------------------------------1
Part I. EAST-WEST TECHNOLOGY TRANSFER
Chapter 1. Technology Transfer Policies-Joseph S. Nye, Jr__ __---------15
Chapter 2. Technology Exports and National Security-Maurice J.
Mountain ------------------------------------------------------22
Chapter 3. Quantification of Western Exports of High Technology Products
to Communist Countries-Iledija Kravalis, Allen J. Lenz, Helen Raffel,
and John Young ------------------------------------------------34
Chapter 4. The Role of Western Technology in the Soviet Economy-
George D. Holliday ---------------------------------------------46
Chapter 5. Technology Transfer and Change in the Soviet Economic
System-John P. Hardt and George D. Holliday ---------------------59
Chapter 6. Economic Development and Modernization in Contemporary
China: The Attempt To Limit Dependence on the Transfer of Modern
Industrial Technology From Abroad and To Control Its Corruption of
the Maoist Social Revolution-Robert F. Dernberger -----------------91
Part II. EASTERN EXPORTS TO THE UNITED STATES AND OTHER WESTERN
COUNTRIES
Chapter 7. Communist Exports to the West in Import Senlitive Sectors-
Karen Taylor and Deborah Lamb ---------------------------------125
Ch ipter 8. Soviet-East European Export Potential to Western Countries-
Hedija H. Kravalis ---------------------------------------------168
Chapter 9. A Summary of U.S. Laws Applying to Imports of Communist
Products-Karen Taylor ----------------------------------------- 173
Part III. FINANCING EAST-WEST TRADE
Chapter 10. Communist Country Hard Currency Debt in Perspective-
Lawrence H. Theriot 179
Chapter 11. Potential 1980 and 1985 Hard Currency Debt of the USSR
and Eastern Europe under Selected Hypotheses-Allen J. Lenz -------- 186
Chapter 12. Statistical Abstiact of East-West Trade Finance-William
F. Kolarik, Jr--------------------------------------------------193
Chapter 13. The Theoretical Capacity of the U.S. Commercial Banking
System for Financing East-West Trade-William F. Kolarik, Jr ------- 210
Chapter 14. The Potential Role of Eximbank Credits in Financing U.S.-
Soviet Trade-Allen J. Lenz and Lawrence H. Theriot ----------------217
Chapter 15. Impact of Eximbank on U.S. Exports-Jane Gravelle--------227
Part IV. UNITED STATES-SOVIET AGRICULTURAL TRADE
Chapter 16. Soviet Agriculture and the Grain Trade-Ronda A. Bresnick
and John P. Hardt- 235
Part V. MARITIME PRACTICES
Chapter 17. Maritime DevElopments Involving the Soviet Union, the
United States, and the West-John P. Hardt -----------------------247
(VII)






VIII

Part VI. PROBLEMS AND PROSPECTS
page
Chapter 18. United States-Soviet Trade Policy-John P. Hardt -------- 267
APPENDIX
Executive Response to Chairman Bolling's Letter ----------------------287
Chronology on East-West Commercial Relations-Ronda A. Bresnick___- 297
East-West Trade Statistics:
U.S. Agricultural and Nonagricultural Trade with Centrally Planned
Economies, 1972-77 ----------------------------------------- 306
U.S. Trade with Centrally Planned Economies: Top 15 Exports and
Imports, by Country ----------------------------------------308
Trade of Industrial Western Countries with Centrally Planned Econo-
mies, 1972-76 ----------------------------------------------315
Status of U.S. Commercial Relations With Communist Countries -------- 321
Membership of Communist Countries in International Economic-Com-
mercial Organizations -------------------------------------------322











TIlE SETTING: THE CONGRESS AND EAST-WEST
COMMERCIAL RELATIONS

By RONDA A. BRESNICK*
CONTENTS

Page
Overview ---------------------------------------------------------- 1
East-West trade: Two schools of thought ----------------------------- 3
The administration of export controls and the technology transfer issue--- 4
The Carter administration and East-West trade ------------------------8
The linkage of economic cooperation to political gains ------------------- 9
Prospects for East-West trade and commerical relations -----------------10
OVERVIEW
U.S. trade with the Communist world has grown rapidly in the
1970's. IVhile it is still small in comparison with overall U.S. foreign
trade, considerable significance has been attached to East-West trade
because of the prospects for future growth and, more importantly,
because of the linkage of commercial ties with East-West political
relations. Congressional consideration of important legislation relat-
ing to East-West trade has been influenced by increased interest in
the U.S. business community in trade with the East. continued efforts
by the Administration to achieve improved relations with the Soviet
Union and China, and controversy about certain aspects of Soviet for-
eign and domestic policies.
Various U.S. legal restrictions have contributed to the low level of
U'.S. trade with Communist countries. Three of the most important
re4trictions-denial of most-favored-nation tariff (MFN) treatment,
restrictions on U.S. Government credits and export controls-have
been at the center of Congressional interest in recent years. The denial
of )IFN and the restrictions on government credits (from the Export-
Import Bank and the Commodity Credit Corporation) 1 have affected
those non-market economy countries unwilling to adhere to the provi-
sion of the Trade Act of 1974 which ties such privileges to certain
-tandrds of free emigration. This provision has been waived by the
Prozident for Romania and Hungary.
The administration of controls-to prevent the export of goods
a.71( teohnolozv which are considered to have military implicationF-
on U.S. exports to Communist countries has been of considerable in-
terest to the Congress in the late 1960's and throughout the 1970's.
*Research Assistant In Soviet Economics, Congreqional Research Service, Library of Congres&;
I The Commodity Credit Corporation (CCC. an agency which provides sbort-term
financing for U.S. agricultural exports, has provided significant credit assistance In Enst-
West trade. It nlaved an important role in the 107.3-1974 rrain sales to the USSR. provid-
inz a total of $550 million in credits for the purchase of U.S. grains. Poland and Romania
cnntlnne to receive export credits from the Commodity Credit Corporation. Under He
3aeksnn-Vanik Amendment to the Trade Act the Soviet Union is denied access to the CCC
as well as the Export-Import Bank.







Legislation in this area has been characterized by steady liberal-
ization, beginning with the Export Administration Act of 1969 and
then continuing with amendments in 1974 and 1977.
Congressional interest in East-West trade during the 95th Congress
focused primarily upon extending and amending the Export Adminis-
tration Act of 1969. Other aspects of East-West commercial rela-
tions, including the regulation of rate cutting practices of state con-
trolled carriers engaged in the foreign commerce of the United States,
the extension of MFN status for Rornania and Hungary, the avail-
ability of U.S. government credits from the Export-Import Bank,
and the stimulation of U.S. agricultural exports to the East by ex-
tending Commodity Credit Corporation (CCC) credits to all non-
market economy countries, were also taken up by the 95th Congress.
While there were several laws passed which touched upon the
issue of East-West commercial relations, the Export Administration
Amendments of 1977-amending and extending the Export Adminis-
tration Act of 1969-was the most far-reaching and may have the
most significant impact upon future trade between East and West.
The 1977 Amendments represent a significant effort by the Congress
to strengthen the framework for East-Vest trade, by facilitating
the export of U.S. goods and technology while clarifying and simplify-
inag the export licensing process.
It seems likely that the Congress will continue to take an active
interest in export controls as it holds oversight and budgetary hear-
ings and as the Executive Branch reviews and reports on export ad-
ministration rules and regulations as mandated by law. In addition,
because the Export Administration Act expires in September 1979,
it must be addressed in the 96th Congress.
Tt also appears likely tinit there will be a closer examination of the
iq-ue of extending official U.S. credits and other trade privileges to
Communist countries. There seems to be some sentiment for modify-
ing (but not repealing) the Jackson-Vanik amendment to the Trade
Act of 19 74, and the Stevenson and Church amendments to the Export-
Import Bank Act of 1974.2
These efforts have in part ben motivated by an interest in main-
taining an evenhanded policy to the USSR and China. By amend-
in- the law to extend credits and other trade privilegres to all non-
market economy countries, preferential treatment is avoided.
Other modifications to the Trade Act and Export-Import Bank
Act, relevant to non-market economy countries, seem to be motivated
by an interest in adding flexibility to the President's waiver author-
ity with respect to emigration while at the same time maintaining ade-
quate congressional oversight and consultation.
While facilitating the extension of credits and most-favored-nation
tariff treatment to Communist countries is likely to be under active
2 The proposed Stevenson amendments (9. 129) to the Export-Import Bank Act and
the Trade Act would : (1) delete provisions in the Export-Import Bank Act and the Trade
Act which single out the USSR for discriminatory treatment with respect to credits, (2)
establish a new limitation on Bank support for U.S. exports to any single Communist
country, and (.) revise the "waiver" provisions concerning emigration practices and
eliLibility for MFN treatment and Eximhank credits.
The proposed AuCoin amendments (H.R. 1,.85), similar to the Stevenson amendments.
would : (1) empower the President to make a determination that the granting of a waiver
to Section 402 of the 1974 Trade Act wold "lead substantially to the achievement of free
emigration obieetivep". (2) extend the duration of a Presidential waiver to five years,
after the first extension, (.) establish a new limitation on Eximbank support for U.S.
exports to all non-market nations of $2 billion.







consideration in the 96th Congress, the resolution of these issues will
take place within the larger context of the SALT agreements and
continued normalization with the PRC.
EAST-WEST TRADE: Two SCHOOLS OF TiiOUG] IT
In the Congress, as well as the Executive and academic community,
two major schools of thought exist concerning the costs and benefits of
East-West trade; one which emphasizes the mutual benefits derived
from trade and the importance of continued economic interdependence,
and the other which emphasizes the adversarial nature of East-West
relations and the desirability of maintaining economic independence
when dealing with the East.

1. Mutual Benefit and Economic Interdependence
Given stable market conditions and an acceptable degree of military
risk, there are those who view East-West trade as mutually advan-
tageous. Expressing the likelihood that U.S. high technology products,
plants and processes may find an expanding long-term market that
will not only yield a profit but, by permitting larger scale U.S.
production will also keep costs down via economies of scale and
R&D outlays up, this school of thought emphasizes the significant
economic benefits that may be derived from East-West and U.S.-
USSR trade.
Over time, through a modest but increasing economic involvement,
it is further believed that the Soviet Union and other Eastern coun-
tries may develop a stake in the economic well-being of the West and,
therefore, encourage policies emphasizing world market stability. A
shift in the East away from military concerns toward more peaceful
objectives such as economic growth and improved consumer welfare
is seen as possible from increased modernization, in part through
East-West trade. Although general political benefits may accrue from
trade, the use of direct economic leverage for specific political gain
is judged to be ineffective.
These views, close to those of many West European governments,
might facilitate a more coordinated US-West European economic
policy towards the East.
2. Adversarial Nature and Economic Independev e
There are those within the Congress, the Executive and the academic
community who view any benefits accrued to the East as costs to the
West and vice versa. This group also believes that, because East-
'West trade is small by comparative measures, it is not likely to be
economically significant to most U.S. businesses or to the economy as
a whole.
According to this school of thought the Soviet Union has much
to ;ain from East-West trade especially by importing criticalWestern
technology and agricultural products to meet shortfalls in plans.
Soviet leaders may also wish to gain technology that would reduce
pressures to reform, ease the military burden, anA assist them in clos-
ing the military gap with the United States. Therefore, if the U.S.
is to export to the Soviet Union at all-or to their allies who may







be considered conduits to the Soviet economy-then the maximum short
term economic and political price should be exacted. As likely sup-
l)liers of the last resort, according to this school of thought, the U.S.
sloulld bargain hard on prices and seek to favorably affect Soviet
di,estic and foreign policy by manipulating U.S. exports and credit.
Although the capacity of the United States to exercise a unilateral
policy of denial is limited, efforts through NATO and other inter-
jiational institutions might lead to a more coordinated US-West
1; i ropean leverage policy.
During the 95th Congress, although legislation concerning the
finan(inhg trade to the Soviet Union and the countries of Eastern
Ellm!fpe ( i1cludirig an amendment to the Agricultural Trade Act of
1978 to extend CCC credits to all non-market economy countries, and
an amendment to the Export-Import Bank Act requiring the compila-
tion of a list of countries eligible for EximBank financing, but spe-
cili -aly excluding the USSR) was considered, none was passed. CCC
credits were extended the People's Republic of China, however.
The Export Administration Amendments of 1977 was the most
si.vnificant legislation of the Carter Administration and the 95th Con-
gre-ss concerning East-West commercial relations. It appears to have
developed new policy guidelines consistent with and within the
framework of the mutual benefit-interdependence school of thought.
At the same time, some of the actions of the Carter Administration
seemi to reflect the adversarial-independence view. It seems important,
therefore, to explore the central features of the Export Administra-
tion Act and the activities of the Carter Adiiinistration in some de-
tail for a more thorough understanding of the issues of East-West
trade.

THE ADMIINisTRATION OF ExIo'r CONTROLS AND THE TECIINOLOGY
TRANSFER ISSUE
On September 30, 1976 the Export Administration Act expired and
by executive order the administration of export controls was placed
nude(r the iutliority of the Trading with the Enemy Act.3 In March,
1977 the Tlouse International Relations Committee held hearings
on various 1bills to extend and amend the Export Administration Act,
and on A'arh 31. 1977 Conressinan Zablocki, Chairman of the House
international Relations Committee, introduced IT.R. 5840 (Export
Administration Amendments of 1977). On April 20, 1977 the bill was
con-idered and passed by the House of Representatives. On May 5,
1977 after being studied by the Senate. the bill was amended and
pas-ed. Following a conference and agreement bv both bodies., com-
pI(rnie legislation was presented to President Carter on June 13,
19 77. On June 22, 1 977 this legislation (referred to as the Export Ad-
ministration Amendments of 1977) was signed by the President and
enacted into law (P.L. 95-52).

O)n Docember 2q. 1977 the Pre-ident signed into law Amendments to the Tradine with
the Enemy Act (PL. 95-223) which among other things repeals the peacetime authority
of the President to reulnate foreign economic transactions under the Trading with the
rnovnv Act of 1917. Therefore. should the Export Administration Act be allowed to
expire any time in the future, the President will not have the authority to continue to
exercik the administration of export controls under the Trading with the Enemy Act
of 1()17.
For a complete analysis of the compromise bill see House report No. 95-354.







The Export Administration Amendments of 1977 are ,lesilned to
improve the export licensing process, and could have a significant im-
pact on East-West trade. Il addition to extendirL the nuthoritv of
the Export Administration Act of 199 to Septethler 80. 1979,'this
law:
States that U.S. policy toward individl,,al couiities shall not be
determined exc<, ,sivelv on the 11'i of a comt rv's (Communist
or non -(oiniuunist status in administerin exlport controls for
national security purposes, but shal take inito acc, ,,it: 0)
the country's present and poteiti al relationship to thi. I .>.,
(b) the country present a1d potential relations}iiu to co mi-
tries friendly anid ho-iile to the U.S. and. (c) the country's
ability and willin _-nvs to control retransfers of IV.S. exports
in accordance with U.S. policy.
Allows the President to deny any request or application for au-
thority to export items from the U.S. to any nation threatening
the national security of the U.S. if the President determines
that such an eN, )ort would prove detrimental to the national
security of the S.
Requires the President t, periodically review U.S. policy toward
individual countries :id together with a justification for U.S.
policy, report to Cong(ress.
Establishes that goods freely available elsewhere should not be
controlled for export from the U.S. unless it can lN shown that
the absence of controls would harm the national security.
Directs the Secretary of Defense to recommend a re-triction on
the export of goods and technology which would uiiake a sig-
nificant contribution to the military potential of any country
which would prove detrimental to the national secuit v of C ie
U.S.
Requires the Secretary of Commerce to either act upon an ei','ert
licensing application within 90 days, or inform the applicant
in writing of the specific reasons for the delay. If no action is
taken within 90 days, the application must be approved and
the license issued.
Mandates a study bv the Secretary of Commerce of the problem
of the transfer of sensitive national security information by
technology exchange agreements and by scientific publications.
Requires a review of the Export Administration rule- and regula-
tions under this Act and the lists of articles, materials and sup-
plies which are subject to export controls to determine how
compliance can be facilitated by simplifying rules and regula-
tions. Results of such a review are to be reported to Congress.
Directs the President to submit a special report on mult ilateral
export controls (the COCOM list) to Congress.
Requires a study by the Secretaries of Commerce and State to de-
termine whether any export controls imposed unilaterally or
multilaterally should be removed, modified or added to in the
interest of national security.
Requires tie Pres;dent to conduct a study of the loileltic eco-
nomic impact of exports of industrial tecbhnoloa'v w hi;l require
a license under the Export Administration Act. "







Calls for a niore effective monitoring of commodities in potential
short supply by requiring that such monitoring begin at a time
adequate to insure that data will be available which is sufficient
to perinit achievement of the policies of the act.
In addition to addressing spe ific export policy and procedure issues,
the Export Administration Amendments of 1977 touch upon several
broad concepts:
1. The Right To Eeport5
By calling for a simplification and limitation of export regulations
and commodity control lists, the 1977 Amendments, according to the
House Commi'ttee on International Relations, are aimed at revising
the premise that exporting-even to possibly hostile Eastern nations-
is a privilege subject to government controls. Under the earlier export
control laws, most trade with Communist countries was restricted in
principle. Although restrictions have gradually loosened to a point
where controls are focived mainly on materials that may endanger
the national security of the United States. the process of decontrolling
items has been slow and complex. Removing an item from the control
list has, in the past, left the burden of proof on those seeking to remove
the control, thereby creating the presumption that exporting is a privi-
le"e rather than a right. Limiting and simplifying the commodity
control lists broadens the premise customary in world trade that ex-
porting is a right, like any other, which may be denied only under
unusual circumstances (such as for the protection of national security).

2. Policy Toward Individual Countries 6
Earlier export control policy was based on the assumption that all
Communist countries (except Yugoslavia) were a threat to the na-
tional security of the United States. The 1977 Amendments attempt to
move away from applying one standard export control policy to such a
diverse group of countries as the Soviet Union, Albania, Bulgaria,
Czechoslovakia, the German Democratic republic, Hungary, Poland,
Romania, Yugoslavia. and the People's Republic of China. Further-
more, the 1977 Amendments encourage a continuing reassessment of
export control policy toward individual countries by requiring the
President to periodically review and report to Congress on the nature
of U.S. policy toward individual countries. In addition, by eliminating
the wording "controlled countries" from the law, the 1977 Amend-
ments discoira ,'e any artificial grouping of countries for purposes of
export control.
On June 23, 1977. one day after signinig the Export Administration
A nendments of 1 977 into law, the President-by recommending to the
Department of Commerce they deny a license to the Control Data
Corporation for exporting the Cvber-76 computer to the Soviet Tnion
may have establliIhed a precedot for limitin- certain types of tech-
nolo(Ty exported to the Soviet Union. While the Cyber-76 computer
SSee U.5. Congress. onnse. CmMiMtee on International Relations. Export Adninistration
Amendments of 1977. Report. 95th Congress, 1st session. April 6, 1977. Washington U.S.
Government Printing Office, 1977, p. 3.
e V .S. C' ln~rlss. Sonnte. Committee on BasnkinZ, Housing, and Urban Affairs. Export
Administration Amendments of 1977. Report. 95th Congress.







was intended for use in processing weather forecasting data, it had
potential appl ications for trackinig missiles an d for other military
purposes. Although CI)C spokesmen maintained they could pro-
vide adequate safeguards against any diversion of tfle Cyber-76 to
iihtar uses, the Carter Adniinistrat ion and the Department of Corn-
nerce felt I he safegalards were not adeqiuate.
Under the (' arter Administratio. the Executive Branch has col-
tinned to stdv export control and technology transfer and lnade
etrorts to plIt into pract ice le 1977 Export Adinistration Amend-
ment s. The Secretarv of IDe fense, for example, in All,,lust 197 7 restated
definitions and guidelines regarding the Department of Defense role
in controlling exports of critical U.S. technology and related prod-
uets.7 Efforts at the Department of Defense during the last year have
focused on (1) identifying and prepali ra list of critical technologies
and products,s (2) assessing the active mechanisms of technology
transfer, (3) developing a simplified criterion for product control
and, (4) exa 'ining whether new administrative procedures or legisla-
tion for streanilining the existing export control system would be
desirable.'
3. International Technology Transfer 10
Both the nature of the comlodity being transferred and the country
to which it is proposed to be exported are necessary considerations in
export control decisions.
Past export control decisions placed heaviest emphasis upon the
political system of the recipient country (whether it was communist
or non-communist). The 1977 Amendments shift this emphasis by
encouraging a more thorough examination of the technology eibodied
in the commodity or service beingI exported in an effort to better iden-
tify the national security im plications of exporting certain tech-
nologies.
In July 1978 another controversial decision was made bv the Ad-
ministration to control the export of U.S. computers to the 7SSR for
national security reasons. President Carter recommended to the De-
partment of Commerce that it reject a Sperry Rand license application
for the sale of a Sperry Univac Computer System to the Soviet news
agency TASS. on the grounds that it had excess capacity for its in-
tended end use which could be diverted to other uses. Although the
decision was made on national security grounds, the timing of the
ease suggested to some observers that the denial was in response to the
7 ecretarv of Defense. Memorandum for the ",ecretarios of the Military Departments.
Interim DOD Policy Statement on Export Control of United States Technology.
SDepartnent of Defense. Office of the Direclor of Defense Research and Enzineering.
Memorandum on List of Critical Technologies for Export Control, 29 Sept. 1977.
9rStatemenr of Dr. Ellen Frost, Deputy Assistnnt Secretary of Defense (ISkAl and Dr.
Ruth Davis, Deputy Director (Research & Advanced Technology (DDR&E)) Office of the
Secretary of Defense. Before the Subcommittee on International Economic Policy and Trade,
U.S. House of Representatives.
10 For discussions on technology transfer and national security and the executive report
on international technology transfers required by Section 24 (c) of the International Security
Assistance Act of 1977. se Titernotiona7 Tronwfer of Techaoiogy: An Agenda of Natiowel
Rcouritt ssucs. Prepared for the Subcommittee on International Secuority an(I ,ifntifie
Affairs, of the Committee on International Relations. House of Represontativ,., T' 5. COTn-
crpss, Feb, 13. 1978. Also see: International Tronsfcr of Tcchnology. Re'vrt of the Presi-
dent to the Congress together with Assessment of the Report by the Conressional Re-
search service, Library of Congress. Prepared for the Subcommittee on International Secu-
rity and Scientific Affairs of the Committee on International Relations, House of Repre-
sentatives U.S. Congress December 1978.







Soviet government's suppression of dissidents and the conviction of
two newsmen. Both computer cases illustrate the difficulties inherent
in administering controls on duel use technologies.
In August, the Carter Administration announced a new procedure
for administering controls on exports of items used for the exploration
or production of petroleum or natural gas. The new procedure requires
any U.S. exporter of such items to obtain a validated license from the
Commerce Department. The announced purpose of this ,+ange wa Io
assure that such exports "would be consistent with the foreign policy
objectives of the United States." The new policy does not mean that
niy sales of oil and gas equipment will be barred automatically. (In
fact, a major transaction, involving the sale to the Soviet Union of
technology to build a plant for the production of drill bits. was subse-
quently approved by the Administration.) It simply provides policy-
makers the opportunity to review proposed transactions and to dis-
approve them in pursuit of U.S. foreign policy goals.

TITE CARTER ADMINISTRATION AND EAST-WFST TRADE
Initiatives 1y the Carter Administration to encourage East-WI-t
tra de have included: (1) establishing full diplomatic relations with the
People's Republic of China. (2) recommending the emigration provi-
sions under the Trade Act of 1974 be waived with respect to Romania,
(3) strengthening U.S.-Polish relations highlighted by a three-day
Presidential visit in December 1977. (4) signing an agreement on
trade relations between the U.S. and the Hungarian People's Republic.
and (5) recommending the enigration provisions under the Trade Act
of 1974 be waived with respect to Hungary.
On January 1. 1979 the United States and the People's Republic of
China established full diplomatic relations. An increase in trade and
commercial relations between the two countries will undoubtedly fol-
low as a result, although the volume of such relations is now uncertain.
The PRC's requirements for Western technology and its more flexible
attitude toward credits and other aspects of the Western market do,
however, suggest a future overall widening of economic ties.
Settlement of the issue of Chinese assets blocked in the ITnitod
States and U.S. private claims against the PIC will facilitate a resolu-
tion of issues such as, most favored-nation (MFN) tariff treatment
for the PRC, the extension of official U.S. credits, a loosening of con-
trols on TJ.S. exports to China and other facets of normalized trade.
The summit between Presidont Carter and Chinese Vice Chai,m -
Ton s Haio-ping in late January 1979 opened the discussion of bilat-
eral trade issues between the two countries and paved the way for
future negotiations on these (difficult issues.
On June 3. 1977, President Carter recommended to the Congre-
tlat his authority under the Trade Act of 1974 to waive the freedom of
emigration requirement with respect to Romania be extended for one
year. Because neither the Hoiiwe nor Senate passed a disapproving
resolution, the President's waiver authority was automatically ex-
tended and nondiscriminatory treatment with respect to trade. credit
and investment was continued to Romania. Stating that trade will







serve to further promote nutuallV beneficial -rowth be wetn the K.
and Romania, President ('arler, in his liecoli icudation To (ongir,-
stressed the importance of maintaining and xl) ii i' tIis i I I :11
relationship for reasotls suchl as ( I ) to hielp st ren.'2" h iin lolImm1ia's i,,-
pendent foreign policy, and (2) enliane1 our 'ility to discuss sutil
topics as emijgration, divided families and marria,,es cases.'t
On )ecember 29, 1977 President ('arter arrived in Polumd for a
three day visit involving discuIssions oi : exlanlll ins I .S.-ol1 ith 1 ':il,
iiproving IT.S. official credit arrangelelit for 1 olat. in re:lsin-l..
exports t) lPoland, and Iitiian right t. Several tradi e :,,ud aid a /reeii'in
are now pending, one as a direct result of Iresiieni artery'ss visit to
Poland in November 1977.2 These agreements are significant becai-e
they: provide hard currency to Poland at a time w hell it is ta:ii,
pressing economic problems, emphasize the growing independent nii-
ture of Poland's foreign policy. and involve informal, ongoing, Iim)n:in
rights disclissions between Poland and lie .S.
On March 17, 1978 President Carter signed an a.-reement on tri e
relations between the United States and the hungarian People's Re-
public. This agreement extends non-discrimiinatory treatment to ti~e
products of the Hungarian People's R'epublic; encourages, pronotk-.
and facilitates trade; provides further business facilities to suppl))t
trade; specifies that financial transactions between both parties be con-
ducted by firms, enterprises and companies in U.S. dollars: reaffirms
the commitments made with respect to industrial property in the Paris
Convention for the Protection of Industrial Property: permits and fa-
cilitates the establishment and operation of a government comme reial
office as an integral part of each Parties Embassy, establistes nmarl ot
disruption safeguards; and encourages a prompt and equitable sett],-
ment of commercial disputes. The initial term of this agreement is,
three years. It may be extended for successive periods of three years
unless either Party gave written notice of termination.
On April 7, 1978 President Carter submitted the agreement to the
Congress for approval.1: On July 7, 1978 the agreement entered into
force.
THE LINKAGE OF ECONO-mIC COOPERATION TO POLITICAL GAINS
During the 95th Congress legislation concerning the I.S.-Soviet com-
mercial relations centered primarily upon the more technical aspects of
trade rather than linkage of trade to human rights issue, as had been
the case in the 94th Congress. Congressional concern for humal n
rights in the Soviet Union. still very strong. was most often express,,,t
through the, framework of existing legislation and through the forlum
of the Helsinki Commission. One exception was the Amendment to
the Export-Inport Bank Act of 1945, signed into law on October 26).
1977 (P.L. 95-143), which links human rights to the extension of
1 V.,S. Congress. House. Committee on Ways and Meanc. Subcommittee on Trade, i.
Favored-Nation Treatment with Respect to the Products of the Socialist Republir (if
Romania. Hearings July 18, 1977, GPO. 282 p.
12 During his trip, President Carter anptomnced that the U.S. would he extending an aili-
tional $200 million Commodity Credit Corporation (CCC) credits to Poland. They "'v re
extended in late 197S.
1See. United Statc.q-Hungarian Trade Agreement. Communication from the Preside*At
of the United States, April 10, 1978.


:(; -144-- 7'-- 2







lo-ns and guarantees by requiring the Board of Directors of the Bank
to consider the observances of human ri-hts before granting credit.14
The Commission on Security and Cooperation in Europe, a major
forum for Congressional concern and interest in East-West relations
chose to focus its efforts on monitoring compliance with Basket Three
(Human Rights) of the Helsinki Final Act during the 95th Congress.
It is not clear whether the Commission wanted to tie Basket Three
(Ituman Riohts) to Basket Two (Economic Cooperation). In. any
cae. they (id not go on record advocating such a coInection.5
Throughout the 95th Congress there was little indication that any
legislation passed during earlier Congresses concerning the linkage of
human rights to trade would be significantly revised. Carter Adminis-
tration spokesmen -Secretary of State Cyrus Vance, and Department
of Commerce officials in particular-expressed their hopes that
Cono'ress would take initiative to modify Section 402 of the Trade Act,
but proposed no specific legislation in 1978.1G
PROSPECTS FOR EAST-WVEsT TRADE AND COMMERCIAL RELATIONS
It appears likely that Congressional interest in East-West trade will
continue to center more on the administration of export controls and
less on modifying other existing legislation. Because the Export Ad-
ministration Act expires in September 1979, export controls must be
addressed by the 96th Congress. Indeed, as legislatively mandated
studies on export administration are completed, as the CoCom list is
reviewed and the Department of Defense moves toward implementing
the Bucy report reconmendations17 it is likely that an increasing,
amount of attention will be paid to export control policy in the Con-
gress, the Executive, and the private sector.
Although studies on simplifying, clarifying and expediting the ex-
port 1dnm1uistration procedure have begun, it appears likely that
the speed at which export license applications are processed will con-
tinue to be of great interest to the Congress as well as I-he business com-
munity. A status quo in the export license application process could
f nstrite Ilhe expediting intentions of the Congress, and limit the poten-
tial trade promoting effects of the Export Administration Amendments
of 1977.
Also of parl icular interest will be the economic and national security
implications of transfering high technology goods and services to the
Soviet Union. The export of energy technology stands out as an issue
of eousi(lerable concern.
141U.S. Congress. Senate. Committee on Bankinr, Housinz and Urban Affairs. Extend-
itna the T,fport-Itport Bmilt of 19.5. Report 9:1-279. .95th Comt-ress. Note that this
linkale pertains to all countries, not only the communist countries.
;1'Seeo IT. Congress. Commis-sion on Security and Cooperation in Eurooe. Implhmenta-
J ,on of the Final Aot of the Conff(rece on Security nd Cooperation in Europe: Findings
and Recomtncrdatons Two Years After leclsinki. Report transmitted to Committee on
lIternational Relations, iouse, Sept. 23, 1977, 194 p.
1'Vash io lotn 'o .t, June 17. 1977, p. A22. Tiore are some within the Congress and
Ad minitration who may have wished to see the jaa(lson-Vanik amenidment repealed but-
faim" a mtove toward proteelionism night ta tze in undesirable modification of the
A(t---eore r.l ietant to support any change at that tine.
I- A t'si, force of the Ieftn e Scuei ltfard, chaired hi Fred 1Mey of Texas Itstruments,
recouueinded: (1) Licenses be withheld only for "revoluItionary", not for "evolutionary"
tetlnolgy. (2) Restrictions he placed more on "active" mechanisms of transfer featuring
trAt1lin on !'oi n eotaet. etc. (") Restrictions of exports to Cotmmnunist countries he
ext"o tttd to all 1al ions. The purpose of the Defense Science Board proposals is to simplify
al "ptlitfe the licensing process and to change the criteria for restricting high-tech-
nology exports.







In additionn to issues in export admiiinistration, legislation in the next
few yIears concerning East -West relations will Iiost likely center upon
the financing oft trade, particularly as it concerns the use of U.S. ofli-
cial credits -from the Con itLodlity (re(lit (orj ation awl the Export-
Imrport Bank.
it is likely that as East-West trade grows, debates will continue on
such topics as financing, linkage, technology transfer and export con-
trols. The following policy questions may be relevant to these debates:
1. Is there a use hil and )ractical mothiod for measuring thle di-
rect and indirect effects of international technology, transfers upon
U.S. national security?
2. What safeguards on high or critical technology exports, such
as computers, would provide adequate protection against the pos-
sible misuses of U.S. technology for purposes that conflict with
U.S. interests?
3. Should the United States government be more concerned with
active technology transfer mechanisms involving transfers of
know-how and less restrictive of product exports as suggested by
the Bucy Report? How would that policy be implemented?
4. What effective legal and administrative options are open to
the Congress and the Executive branch to develop coordinated
policy on private commercial transfers of technology?
5. The countries of Eastern Europe have achieved varying de-
grees of independence from the Soviet Union. How can we deter-
mine whether leakage of Westem technology from country to
county is likely? Are East European countries automatic con-
duits of imported Western technology to the USSR?
6. Has the linkage of economic cooperation to humanitarian is-
sues been a successful and productive policy? How can the Con-
gress best evaluate the impact of linkage policy upon the U.S. and
Soviet economies?
7. Would it be economically beneficial and consistent with our
foreign policy interests to permit the USSR access to CCC credits
for the purchase of U.S. agricultural exports?
8. IIow should the country eligibility for Eximbank be deter-
mined?
9. Should the United States assume an evenhan(led policy
toward the USSR and the PRC with respect to tariffs, credits,
export licensing, and other commercial matters? How can this
policy best be implemented?















Part I. EAAS7T-WEST TECHNOLOGY TRANSFER
Technology transfer has been one of the most controversial aspects
of the expansion of U.S. commercial relations with the East in the
1970's. The relaxation of national security export controls. which was
given great impetus by the Export Administration Act of 1969 and
subsequent amendments, has contributed to a rapid expansion of trade
with the Soviet Union and other Communist coumitries. An important
component of that trade has been the transfer of advanced U.S. tech-
nology to Communist countries.
Some observers have begun to question the wisdom of expanding
sales of many kinds of technology. particularly to the Soviet Union.
While the Export Administration Act provides for controls on ex-
ports which make a "significant cont ribution" to Soviet military poten-
tial, opponents of increased technology transfers maintain that the
Soviet military sector might benefit indirectly from technologies sold
for civilian purposes. For example. many technologies have both civil-
ian and military applications. Although sold to a Soviet civilian in-
dustry, such a technology might be diverted to the military sector. In
addition, Soviet acquisition of some civilian teclhnologies might re-
lease to the military sector domestic resources which might otherwise
have been needed to develop those technologies independently. The
Soviet militatrv sector might also benefit indirectlv tiroiLh its inter-
action with a civilian sector that has raised its general technological
level by importing Western technology.
These arguments are rejected by observers who favor continued ex-
pansion of technology transfers to the Soviet Union. They maintain
thit while diversion of dual-use technologies from the civilian to the
military sector is possible. it is unlikely because it is usually difficult and
the risk of detection is liigh. They also point out that technology im-
ports not only release domestic technology resources: they also require
that complementary resources he invested so that the new technolog-y
evn be effectively exploited. Thus, WYestern-assisted Soviet projects
ma v compete with the military sector for some domestic teohnolo,ical
resources. Finally. proponents of expandino- technological exchanges
with the Soviet Union note that T., companies that sell technology-
to the Soviet Union also benefit. If U.S. firms were denied the ri&ht to
sell to the Soviet Union. Soviet importers in many cases would have
access to equivalent tecliolo ,fies in other Western inlstrial countries.
Chapters 1 and 2 of this volume provide exp'anations of T.,. tech-
nolozy transfer policy 1v two observers who have been involved in
policyvmal-inr and administration in this area. The author of Chanter
One examines5 thie special case of IT.S. technology transfer to the East
in the Prspictive of overall I.S. technolozv, transfer police. The an-
thor of Chapter Two focuses on the relationship between technology
transfer and U.S. national security.





14

Many of the arguments for and against increasing technology trans-
fers to the East are based on assumptions about the impact of West-
ern technology on the domestic economies of the Communist countries.
Chapters 3 to 6 provide insights into this question. Chapter 3, entitled
"Quantification of Western Exports of High Technology to Com-
munist Countries," examines the quantity and commodity composition
of "high" technology products to the Soviet Union and Eastern Eu-
rope. Chapter 4, entitled "The Role of Western Technology in the
Soviet Economy," suggests that Western technology is assuming a
new, more prominent role in Soviet economic plans and provides a
closer look at the resource-releasing and resource-demanding effects
of technology imports. Chapters 5 and 6 provide analyses of the pos-
sible effects of Western technology transfers on domestic institutions
in the Soviet Union and China, respectively.











Chapter 1. TECHNOLOGY TRANSFER POLICIES*
By JosErII S. NYE, JR.
The subject of teclmology transfer has become increasingly impor-
tant in international economic affairs in recent years. The U.S. Gov-
ernment and the various elements of the private sector-industry and
labor-are concerned about the subject. This is certainly evident from
the interest in this 2-day meeting. The subject has also received much
attention in meetings of international organizations like the U.N. Con-
ference on Trade and Development (UNCTAD) the U.N. Industrial
Development Organization, the U.N. Commission on Transnational
Corporations, and the Organization for Economic Cooperation and
Development (OECD). Our policy is currently being reviewed in an
interagency study by the executive branch in response to a request )vy
the President. We expect the first part of this review to be completed
early next, year.,
Technology transfer occurs through a diverse set of mechanisms and
in a variety of situations. For example, East-West, North-South, and
West-West conditions of technology transfer are all quite different.
Any general description of our policy can only define the central trend,
not describe each situation.
By and large the government takes a neutral position in regard to
the largest part of technology transfer-that is. virtually all except
East-West transfer and that involving military technology. -Most
American technology is transferred across international boundaries
through private trade and investment by American corporations. Thus
the fundamental policy of the U.S. Government toward technology
transfer derives in the first instance from its attitude toward interna-
tional investment-that is, to neither promote nor discourage inward
and/or outward investment flows or activities.
The government ideally tries to avoid measures which would give
special incentives or disincentives to investment flows and normally
does not intervene in the activities of individual companies regarding
international investment. This principle of neutrality flows from our
longstanding commitment to a generally open international economic
system, and to a considerable extent it covers the transfer of technol-
ogv. But the exceptions are sometimes as important as the rule, and the
underlying philosophy is somewhat more complex.
The basic philosophy of an op)en international economic system that
underlies our policy toward the largest component of technology trans-
fer assumes a positive sum game-that all nations are better off as a re-
sult of the transfers that occur. There is a strong logic behind this
Address before the Electronic Indu tries Association In Washington. D.C., on D-c. 7,
1977. Mr. Nye Is Deputy to the Under Secretary for Security Aszistance. Science. and Tech-
nolo y. Reprinted from the Department of State Bulletin. March 197., pp. 3R-41.
I For reference to one of these executive branch studies spe. "International Transfer of
Technology" Report of the President to the Congress. together with the Asespsment of
the Report by the Congressional Research Service. Library of Congress. HIouse Intorna-
tional Relations Committee, Dec. 1978. GPO 54 p. [Eds.]
(15)







position. The logic is strongest iii relation to technology flows among
developed countries. But a number of problems arise in East-West and
NOrth-SonIh transfer of technology. To understand these problems
we iisi go beyond economics and realize that technology is an impor-
tant source of the relative power of the United States in world politics.
Many aspects of power politics resemble a zero sum game-where one
n ion's gain is another's loss.
The most familiar aspect of the politics of technology transfer and
the most frequent source of exceptions to the general rule relate to
military security. The strategic nuclear balance depends on mutual
assured deterrence. One reason we maintain a triad of land-, sea-, and
air-base strategic nuclear systems is to use redundancy as protection
,aainst destabilizing technological breakthroughs. For the same rea-
son, we use export licensing to inhibit transfer of technology that could
si, iificantly contribute to Soviet military potential.
We, also restrict the transfer of certain aspects of nuclear technology
tlt provide direct access to weapons-usable material because of the
d('tners to our security posed by the potential proliferation of nuclear
wra1)onq. We also control the export of conventional armaments to
avod introducing destfibilizing- military technologies into regional
reltionships that could ultimately affect our security. A number of
important initiatives have been taken by the Carte" Adminitration in
relation to those military-security exceptions to the free transfer of
technology.
The political aspects of technology transfer -o beyond the military
significance alone. For one thing, a strong technological lead by the
United States contributes to our overall economic strength. We are
concerned to maintain our overall technological strength. In addition,
there are many issues in world politics today where military force is
not particularly useful in achieving our obiectives-for example, com-
n unications satellites, ocean resources, environmental cooperation. Yet
in each of these areas, our advanced technology provides us with a
potential instrument for political bargaining. Technological leader-
ship can provide usable power.
A popular ten(lencv in thinking about technology as a source of
pow-r is to think in simple terms of restricting its export. But tech-
'v is not like a precious netal to be hoarded. It is more like a fine
Rhin, wine. He who hoard, it too long is left with bottles of worthless
Svi 'a,.. With time, any technology will spread-as Britain found out
with the textile technolo'v in the lth century and the United States
, 'ovcred with nuclear technology in the 1940's.
It is sometimes said that the most important aspect of technology
transfer is the sure knowledge that something can be done. From then
on. diffusion is a matter of time. Thus a sense of timing i: crucial to
derivin power ad antaees from iny erodina nsot such as tech-
u, lo,,ical leads. Tndividlual firms know this and act accordin,olv in their
product cycles. A critical policy question is whether the government is
capable of making refined decisions about proper timing and the posi-
tiv, use of technology transfer controls.
MNanv doubt that our govern mental machinery-both executive and
legislative-is capable of such finely calculated decisions. In the ab-
senice of an adequate process, they argue. th best government stance
is one of neutrality with the burden of proof put upon those wishing







to restrict exports. In practice. this burden, particularly in the case o f
East- est trade, has tended to be placed upon military security ar'i-
ments. Yet even in this area, we often encounter diflicullties in MaV i)r
carefully balanced and refined judgments.
EAST-WXEST TRANx SFEn

Over the past 5 years, the Inited States and the Soviet Union ivve
greatly expanded their economic relationship in the field of trilde
although we lag behind other Western exporters in many areas. Fin
an economic point of view, increased trade with the I ..S.R. bee lts
the U.S. through higher employment, an improved balance of trnd.e,
and access to valuable raw materials. Politically, it also increases .i-
tact between our two peoples. gives the U.S.S.R. an incentive to relax
its traditional isolation and play a more normal role in the wol1
economy, and adds an element of stability to our political relation;. in
cooperation with other Western nations, we restrict export of goodsq
and technological data which would make a significant contribution to
the military potential of the Soviet Union and prove detrimental to our
security and that of our allies.
U.S.-Soviet trade has expanded considerably since 1971. Two-wvy
trade totaled only $220 million in 1971 but stood at $2.5 billion in 1.9T7';.
Last year the balance of trade was strongly in our favor: exports were
roughly $2.3 billion and imports about $1.220 million. Some two-thirds
of our exports, however, consisted of agricultural products which ill-
volved little transfer of technology. Moreover, U.S.-Soviet trade still
accounts for a small percentage of total U.S. trade. Our 1976 export to
the U.S.S.R. accounted for only 2% of our total exports. and the U.S.
share of OECD technology exports to the U.S.S.R. remains far below
the U.S. share of such exports to other markets.
In October 1972 the United States signed a trade agreement with the
U.S.S.R. granting most-favored-nation tariff treatment to Soviet goods
in return for certain Soviet commitments: a declaration of intent to
place large orders for U.S. agricultural and industrial goods, provi -zlon
for third-country commercial arbitration, and improved facilities for
U.S. businessmen in Moscow. This agreement required legislation
which became public law with the passage of the 1974 Trade Act. But
this legislation contained an amendment which linked Soviet emigra-
tion practices to the nature of our trade relationship. This was not
acceptable to the Soviet Union.
However, since 1972 the two governments have entered into a numb er
of economic agreements and have expanded the framework for their
commercial relations. A number of U.S. private companies have under-
taken important initiatives. The U.S.-U.S.S.R. Trade and Econoniic
Council composed of 200 U.S. firms and 100 Soviet organizations .vas
fo med in 1973. It has offices in New York and Moscow to expand U.S.-
Soviet trade. Twenty-five U.S. firms have received permission to open
offices in Moscow and at least 55 American firms have entered into co-
oneration agreements with the Soviet State Committee on Science amil
Technology under our basic science and technolo.4y agreement. Not all
of these agreements have, however, been implemented.







A number of problems in East-West technology transfer are under
,current consideration. One problem, raised by the Bucy report sub-
mitted to the Defense Department last year, concerns control of key
technologies. How to select the really critical technologies is a complex
issue. A closely related problem is how to maintain cohesion among the
Western members of the Coordinating Committee for East-West Trade
Policy (COCOM) when there is a feeling among COCOM members
that the COCOM list and procedures are unduly restrictive and .ill-
suited to the military security problem posed by the Soviet Union.
Yet another problem is how to refine internal decisionmaking pro-
cedures so that a broader conception of national security is used to make
decisions. U nder current procedures, precise arguments that a technol-
ogv transfer has military significance, no matter how slight, tend to
prevail easily over important but fuzzy arguments based upon broader
national security considerations. Thes issues and the important trade-
offs they involve are currently under discussion and review as part of
the interagency study I mentioned earlier.

NORTH-SOUTH- TRA-.-SFER
The other politically difficult area in the transfer of technologT is the
North-South area. The transfer of technology is viewed by the devel-
opin- countries as critical to achieving long-term economic growth and
development. Thev would like to see some basic changes in the present
process of technology transfer including a large measure of govern-
mental control over the terms and conditions of commercial technology
transfer from the developed countries. They claim that their right of
access to technology which they regard as the "common heritage of
mankind" has been limited and restricted unreasonably and that this is
the main reason for their being underdeveloped.
Some of these countries have established measures under their na-
tional laws to prohibit technology suppliers from imposing any re-
strictions on recipients for the use of this technology. Through
UNCTAD they have pressed for a mandatory code of conduct covering
all forms of technolog-y transfer to regulate the conditions under which
owners of patents and other technology can license and sell their tech-
nology abroad.
On the other hand, U.S. labor unions have raised the issue of the ad-
veris offedt s of forei 'gn technology transfers on U.S. employment levels.
The idea is that the flow of technology abroad enables goods to be pro-
du'cel in foreign countries which would otherwise have been produced
in this country and, as a consequence, jobs are lost in the United States.
Tho Congress has requested a study of the domestic economic conse-
quences of the transfer of technology abroad in recently enacted amend-
inents to the Export Administration Act.
It is, of course. difficult to answer the question of impact of technol-
o 'v transfer on balance of payments and on the U.S. labor market.
These are subjects that will be addressed in substantial detail in the
course of this meeting. There are a number of factors involved which
may have a tendency to balance each other. While it is true that the
transfer of technology from the United States to a foreign country
,does enable that country to produce goods that otherwise might have







been produced in the United States, it is also true that the boost given
to the economic and social conditions in the recipient country will in-
crease its absorptive capacity for other U.S. goods and that effect may
equal or surpass the loss in market due to the additional production
within that country. Furthermore, studies conducted at the Harvard
Business School show that the net effect depends upon the likely alter-
natives to the transfer, and these alternatives depend upon the stage
of the product cycle. Since it is often difficult to state with certainty
what the alternative might have been, it is not surprising to find a cer-
tain amount of political acrimony in particular cases.
Looking at the other side of the coin, we believe that over the long
run, the economic and technological development of lesser developed
nations is in our national interest. We continue to believe that North-
South investment flows can be an important form of transferring tech-
nology for development.
We respect the right of each country to determine the environment
in which foreign investment takes place in that country. At the same
time, once foreign investments have been made on this basis, these gov-
ernments should not discriminate against established firms on the basis
of nationality or deprive such firms of their rights under international
law.
On the question of codes of conduct for multinational enterprises, we
believe that they must, of necessity, )e broad in nature and, conse-
quently, they do not lend themselves easily to legally binding arrange-
ments. However, we believe they can serve a useful purpose by provid-
ing a basis for firmer expectations of accepted behavior for both in-
vestors and host governments. In summary, we believe that broad codes
of conduct should be voluntary in nature; should be balanced in refer-
ence to the responsibilities of governments and multinational enter-
prises, should not be used as a basis for discrimination; should abide
by international law concerning foreigners' property rights; and
should apply to all enterprises, whether private, government, or mixed.
The only internationally agreed code of conduct at present is the
package agreed to by the OECD ministers in June 1976. We believe
this was a major step toward realizing our goal of clarifying the rules
for, and strengthening cooperation on, international investment.
The most important current forum for dealing with North-South
investment issues is in the U.N. Commission on Transnational Corpora-
tions and its Intergovernmental Working Group on a Code of Conduct.
Here we are coming to grips with some issues that divide developed
and developing countries-permianent sovereignty of the state versus
standards of equitable treatment and compensation traditionally main-
tained in international law, a binding versus a voluntary code of con-
duct, and responsibilities of firms versus responsibilities of govern-
ments.
I have explained in some detail the general position of the U.S. Gov-
ernment with respect to technology transfer through the private sec-
tor. It is essentially a noninterference policy unless the security or
other vital interest of the United States is involved. We believe this is
the right policy for us to follow. Loss of leadership in science and tech-
noloy, will not occur in this country because of normal commercial ex-
change in the course of doing business on an international scale. On the







contrary, the risk of loss of leadership would be much greater if we were
to adopt a protectionist policy with respect to our science and technol-
ogy. We believe in the ability of this country to continue to compete
vigorously in an open international economic system.
In the long run developing countries can and will expand and im-
prove their own industrialization through their own efforts as well as
the normal action of private firms competing in a global economy.
Government measures that obstruct technology transfer do not serve
the long-term development interests we share with the less developed
countries.
The U.S. Government can play a positive role through helping to
strengthen the universities and research institutes in these developing
countries to make them better able to absorb technology and to develop
their own technology. We can also examine ways to facilitate the flow
of pub lic sector technologies. Several kinds of technology are largely
in the mblic domain and others would not be competitive'with Ameri-
can industrial or commercial interests. In the past the U.S. Government
has provided some technical assistance in these areas, but the effort
could prolbablv be considerably increased.
Fir-t, the United States could promote the transfer of public tech-
nolo'Lies that build up the economic and social infrastructure neces-
s'ry for modernization. This effort could cover technologies for elec-
tric power, public transportation: education: preventive and curative
health care: agriculture productivity: water, air, and land conserva-
tion: natural disaster planning: and others.
Second. there is a large pool of unused teehnolofy now in the public
domain, some of which is in the form of expired patents not now being
commercially exploited but much of which are well-developed technol-
oies that were put aside at a time when they were not competitive. -A
promisin- example is the use of forest products and agricultural resi-
dues for the mnimifacture of a vast range of useful materials which are
now derived from petrochemicals. Some of these ignored. and now
mblic, technologies are clearly useful and others are not. All need to
be examined critically and many might be improved by cooperative
ventures in research and development which could ultimately bring
mutual benefit to both developed and less developed nations.
Third. we believe that the nonproprietary technologies of food proc-
essing could effectively be transferred to establish the basis of small.
rural industry in developing countries. Such transfers would hardly
be competitive with American industry or agriculture in a world which
faces overall food shortages for the foreseeable future.
Of course. the areas in which they shall need to build up expertise
will vary widely from country to country depending on their present
capabilities, their own needs. their own natural resources and human
resources, and their future commercial onportunities. The process will
be a lona one, but we believe it is the effective way to improve social
and economic conditions in these countries. There is no quick and easy
road to industrialization. It would be well to supplement the term
technology transfer in this context with technology development. We
expect these questions to be treated in the I.N. Conference on Science
and Technology for Development to be held in 1979.
It is altogether appropriate that we ask ourselves why the United
States should be helpful in strengthening the educational and tech-







nological infrastructure of developing countries. Tlie reason is tflat
over the long r-1n, we see the development of lli (d World countries as
reinforcingr our national interest through cont ribut in g to a more stable
world order. Whatever the near-term ( conflicts, we shotihl see North-
:outh transfer of technology as a positive sum game in the long run.
Ave believe that technology transfer:
Will contribute to meeting human needs and de\ eloping hmman
eal)acities an(t to upward mobility through tlie growth of indigenous
technical and managerial skills,
Will promote less developed country internal economic development
and independence and reduce their dependence on current aid-type
programs;
Will enable the less developed countries themselves to exploit their
resources and thus maintain world supply of inm)ortant materials;
and
Will promote the integration of less developed contrie into thu
world economic conimimnity where, as part of that community, ti ey
can attain the transfer of technology needed for their develotmvlret,
remove feelings of colonial subordination, and participate in more of
the positive benefits of increased economic and political integration.
I believe the workshops which will follow in the course of today and
tomorrow will provide elaboration of the several points I have men-
tioned. I hope that I have given you some indication of the broad
doctrine and policy of the U.S. Government on the important subject
of technology in world affairs.












Chapter 2. TECHNOLOGY EXPORTS AND NATIONAL
SECURITY*
BY MAURICE J. MOUNTAIN"
I
In the past few years, an increasingly popular subject of discussion,
is what has come to be known as the technology transfer problem.
Broadly speaking, this is the question of whether it is in our national
interest to transfer advanced U.S. technologies to other countries and
the extent to which the government should attempt to regulate the
process.
The recent growth in the number of public speeches, learned articles,
business-sponsored seminars, academic research projects, and high-
level government studies being devoted to this topic has been exponen-
tial. While much of this outpouring is devoted to political and eco-
nomic considerations it is the national security aspect which appears
to generate most concern. Here the central issue is whether adequate
government control is being exercised over the technology being re-
leased to the Soviet Union and its Warsaw Pact allies. Some argue
that government controls in this area are too tight, some that they are
too loose, and some that they are ineffective in any case and probably
should be dropped altogether. Some have termed the controls a
"shambles" and some have even gone so far as to assert that the gov-
ernment has failed to recog-nize the importance of technology and has
allowed vast amounts of it to be exported to the detriment of our
nat ional security.
Such wide variation in opinion is, perhaps, to be expected. The
issue is a difficult an d complex one. Moreover, it arises in a field in
which, as -Mark Twain once remarked admiringly about science, one
can get a wholesale return of conjecture from a trifling investment of
fact. However, a more likely reason for the different opinions appears
to be limited acquaintance with the actual working of government con-
trols and with the criteria by which they should be judged. Indeed,
there seems to be widespread misunderstanding of the nature of tech-
nology, of how it flows abroad and of what the realistic choices are
in any governmental effort to restrict its export.
This is a situation which calls for some correction. With that pur-
pose in mind, the following observations, made from the perspective
of a member of the government export control community, are intended
to deal with some of the more salient aspects of the problem.
*A version of this article originally appeared in Foreign Policy, Number 32, Fall 1978
(W'shington, D.C.).
**Dr. Mountain Is the Director of Strategic Technology and Munitions Control, Office,
of the Assistant Secretary of Defense for International Security Affairs. The views expressed
are solely those of the author and do not necessarily represent the views of the Department
of Defense.
(22)







11
Any meaningful discussion of this subject must begin with a clear
understanding of the terms "teclinology" and "national security." A
very useful definition of the first of these is one formulated by J. Fred
Bucy, the Chairman of a Defense Sciecue I Board Task Force which, in
1976, made an extensive study of the technology transfer problem:
Technology is not a science and it is not pro(lucts. Tech-
nology is the application of science to the ni:umifacture of
products and services. It is the specific know-how required
to define a product that fiulills a need, to design the product,
and to manufacture it. The product is the end result of this
technology, but is it not technology.'
The second term, "national security," can be defined in many ways.
In the largest sense, a nation can be said to be secure when it has
achieved a state of inviolability from hostile acts or influences. More
precisely, if one adopts the official usare of the Department of Defense,
national security is "the condition provided by: a. a military or defense
advantage over any foreign nation or group of nations, or b. a favor-
able foreign relations position, or c. a defense posture capable of
successfully resisting hostile or destructive action from within or
without, overt or covert." 2
It is chiefly in connection with the first of these conditions-main-
taining a military or defense advanta(e-that the question of govern-
ment control of technology transfer abroad becomes important. Why
this is so can most easily be understood in terms of four related
propositions about today's world. They can be stated as follows:
1. The Soviet Union, as a Communist State. is chronically
hostile to the fundamental political values of the West and to the
continued existence of the cost ititional democratic system which
embodies and sustains these values.
2. To serve that hostility, the USSR and its Warsaw Pact allies
have created and maintain in being formidable military forces
which are capable of use against areas of vital interest to the
United States.
3. The element in the world -itiation which (eters the ITSSR
from actively employing these forces against the West is the mar-
gin of military advantage which the U.S. and its NATO allies
continue to maintain.
4. The military advantage possessed by the West is qualitative
rather than quantitative. i.e.. it resides not in the size of the U.S.
and NATO forces but chiefly in the technological superiority of
their weapons systems.
It should be emphasized that these are propositions. But they are
important because they supply the qeldom-mentioned premises upon
which our system of strategic trade controls rests and because if any
of them is demonstrably false, the national security argument for con-
trol of technology exports is largely destroyed. Even more impor-
1 J. Fred Biiey. "On Strategie Tpehnology Transfer to the Soviet Union," Intcrntional
Seeuriti, Canbrid-e. Masq.. Spring 1977.
2 The Joint Chiefs of Staff, Pnb. 1, "Department of Defense Dictionary of Military and
Associated Terms," Washington, U.S. Government Printing Office, 1974.







tantly, inuich of the justification of our defense policy is also destroyed
for it, too, is based on them.
-About some of these propositions there can be little doubt. For
example, it is a fact that the USSR, together with the other Warsaw
:ae t countries, has today more men under arms, a larger air force, a
.-'eater nuinber of missiles, tanks and artillery, and, in terms of num-
hiers of ships, a bigger navy than the U.S, and its NATO allies.
There is also reliable evidence that the U.S. currently has an
appreciable niargin over the USSR in some crucial (although not
mssily all) performance factors of our intercontinental ballistic
missiles, submarine launched ballistic missiles, strategic and tactical
a ircraft, uMClear attack submarines and low frequency passive under-
Nwater hvdroacoustic intercept systems. These margins, which neces-
sarily vary with the weapons system being considered, consist in such
ti n- as better accuracy, reliability, speed, range. ability to escape
detection, in short, in technological attributes which result in greater
cHiibat effectiveness.
Secretary of Defense Brown, in testifyin." before Congress in sup-
port of the Fiscal Year 1979 Defone budget. stated. "We rely in-
creasingly on the sophistication of our equipment to compensate
for potential superiority in enemy numbers." 3 In this connection, one
s wild note that for the past several years more than ten percent of
tfli U.S. Defense budget. or approximaelv S410 billion annually. hacz
been expended on military research and development to maintain U.S.
technological superiority. For Fiscal Year 1979, the amount being re-
(lie 4ed is $12 billion. Evyen these sums tend to understate the total of
th relevant outlays since they do not include the even larger expendi-
tmires necessary to procure, deploy and operate the improved weapons
sy-tems which result.
In any event, if these basic propo-itions are true-if indeed there
is slibstance to the notion that a narg'in of qualitative superiority in
our weapons systems is vital to our deterrent strategy and to maintain
it requires sueh tremendous expenditures-simple prudence dictates one
conclusion : We must not reduce that ma rLin by heedlessly permitting
the transfer to our adversaries of the technologies on which it is based.
If is this which the Conmress obviouslv had in mind when it de-
careod it to be the policy of the ITUnited States "to restrict t'ie export
of foods and technology which would make a significant contribution
to the military potential of any other nation or nations which would
prove detrimental to the national seomrity of the United States." 4 In
(1,dine" technology transfer issues, thi, is the ultiniate test.

TIT
It is a curious circumstance that many current discussionss of aovern-
nient control of technology exports tend to treat any technology as
important to national security if. in some way. it contributes to the
economic, political or social well-bein r of the United States. Such a
VIev overlooks, the fact that the necessary link between technology
aul national security is the production of military weapons systems.
3 Pparizns Wofre tip Hotqe Armed Services Committep. Feb. 7, 1978.
4Exqort Administration Act of 1969, as amended, See. 5(1) (B).







One explanation is the natural tendency to regard all things which
contribute to military power as having direct military value. To a
degree this view is correct, but it is far too general to be useful. More-
over, by logical extension, it can lead to practical absurdities, such as
the possibility of classifying an improved method of growing wheat as
military technology because soldiers must be fed. The simplest way to
avoid such confusion is to note that. whatever impact, a technology mIav
have on the quality of human life, the domestic econouly, foreign
trade, the balance of payments, or even diplomatic relations, its
national security significance depends entirely on the extent to which
it is or may be aplplied to a specifically military purpose. Thus, a tech-
nology, however sophisticated or advanced, which has no present or
future military application can be ignored. Even technologies which
do have a specific military application but which, if transferred to an
adversary nation, would make no significant contribution to the pro-
(iction or operation of a military weapon are of little importance. For
example, given the fact that the Soviets already have demonstrated
ability to produce rifles, the U.S. technology involved in the making of
rifle barrels, unless it would result in a markedly better or more efli-
ciently produced Soviet rifle, could be acquired by the Soviet Union
with no appreciable effect on our national security.
Once the central position of wea pons systems is recog-nized, the tech-
nology whose transfer could be detriinental to nat ional security can be
(determined in logical fashion from the answers to a series of fairly
obvious questions. The first would be: In what weapons systems do the
U.S. and its allies now have, or are they likely to have, a maroin of
technological superiority in relation to the USSR and Warsaw Pact ?
Next would be the questions: What particular attribute of the system
makes it superior ? Is it, for example, its acci'acy, reliability, speed,
range, ability to escape detection, invulnerability to electronic counter-
measures, or what ? After identifying the specific nature of the ad van-
tage, one can then look for its source. In the weapons systems men-
tioned earlier, the U.S. advantage derives in the first instance from
superior guidance and control systems, liquid and solid propulsion
svstems, advanced computers, composite materials, basic airfrlei
fastening techniques, active and passive sonar systems, cable tech-
nologv and signal processing. When the search is carried beyond this
initial stage to the discovery of the ultimate source, it generally turns
out that the qualitative advantage of a weapon system stems from some
special know-how in the design. production or operation of one or more
of its component elements, a know-how which, for one reason or
another, is not available to the Conmunist world.
To cite but one example. U.S. combat aircraft presently out perform
comparable Soviet equipment in a number of significant respects,
amonr them payload and range. One reason is that U.S. planes are
powered by jet engines which have a notably better thrust-to-weight
ratio. This is due. in large part. to the fact that these eng'ines can oper-
ate at much higher temperatures. This, in turn, is possilble because the
turbine blades of the U.S. engines are made of special heat resis4ant
materials. And finally, these tnrbinl blades can be manufactured
because the U.S. has developed the know-how required to work the
materials from which they are made while the U-SSR has not.


36144-79- 3







This kind of knowledge call be characterized as critical technology.
But in applying this term, it is necessary to be clear on what there is
a)out it that makes it "critical." The attribute which places a tech-
nology in this category is what may be called, for want of a better
term, its scarcity. It is not enough that it be essential or unique to the
particular product or weapons system to which it applies; to be "criti-
cal," it must also be sufficiently esoteric to be known only to a few. In
the world of business, it is that form of proprietary information called
a trade secret, i.e., special technical knowledge which competing firms
do not possess. In the context of national security, it is technology
which the Soviets do not yet have and we do not want then to acquire.
One way to illustrate how this quality of being critical differs from tiat
of being essential, or unique, is to point out that the production of ijte-
gratcd circuits is usually done on an assembly line basis in which -, con-
veyor belt arrangement is essential. Since the conveyor belt system
must be designed for the particular parts being conveyed, it must to
that extent be unique. But the task of d"es"gnil, I It operat-
d esl m p rod uicinig an d op r t
ing such an assembly line conveyor belt requires no particular tech-
nology that is not generally known or readily av:milable to any reason-
ably competent engineer in the U.S. or else-li(ice. By contrast, in the
fabrication of high-quality interated circuits, the making of masks,
the whole area of process control, and the testing of the finished pro-
ducts are examples of technologies which are "critical" precisely
because, in addition to being essential and unique, they involve tech-
ni(ues which the Soviets and their allies have not mastered.
lere, however, some caution must be observed. The fact that the
Soviets have not mastered a particular technique which has military
sinificance to the West does not necessarily mean that they want to
obtain it. Nor does it mean that they would make military use of it if
they could obtain it. Soviet weapons development philosophy and prac-
tice are different from that of the IT.S. They tend to emphasize sim-
plicity and quantity; the U.S. stresses sophistication and high quality.
In addition, the Soviet system with its rewards for individual perform-
ance keyed to the fulfifnent of predeterminedd output goals places a
rimimiber of obstacles in the way of adopting and supporting innovative
Changes in production processes. It is, therefore, quite possible that the
USSR,whether from necessity or choice, would not make military use
of technologies we consider important, even if we were to make them
vaila 11e.
To act on this assumption, however, could be risky. One reason is
that, by definition, the release of a critical technology would provide
the Soviets with an option they do not now have and one they would be
free to exercise at any time it became attractive to them. A second rea-
son is that they have shown, by their achievements in space and in the
nuclear field, that they can overcome in limited areas the societal weak-
nesses which beset their industy in general. And, finally, the strenuous
efforts they continue to make by covert as well as overt means to obtain
critical U.S. technology suggest they then intend to make use of all
they can acquire.







IV
Identifying critical technologies is not an easy task. It is, however,
relatively siniple compared to the probleiu of devising ways erexci I velv
to control their export. A1 major source of difficulty is the fact that
there is a wide variety of legitimate channels through which tech-
nology can and does flow. The defensee Science Board Task Force,
mentioned earlier, identified a number of these channels and rated
them as to their effectiveness as transfer mechanisms.5 Alt hougli they
noted some slight variation from indust rv to industry, they were abhe
to establish a fairly uniform pattern. At the low end they placed trade
exhibits, commercial literature, undocumented sales lool)Osals, sale" o
products without maintenance and operations data, and licenses with-
out know-how. In the middle they placed commercial visits, p'roesliug
equipment without know-how, documented proposals, licenses with
know-how, consulting services and engineering documents, and tech-
nical data. At the high end, they listed processing equipmeiit with
know-how, training in high technology areas, technical assistance (on-
tracts, joint ventures, licenses involving extensive training and, ulti-
mately, turnkey factories.
What is noteworthy about this ranking is the fact that the order
appears to be directly related to the degree of interpersonal contact in-
volved. The mechanisms at the upper end of the scale require extended
personal contacts between highly qualified people from both donor
and recipient. At the lower end. such contacts are minimal and, in some
cases, may be non-existent. The mechanisms rated in the middle require
interpersonal exchanges whose quality and duration fall somewhere in
between.
What emerges is the conclusion that the key to effective technology
transfer is the amount and nature of the person-to-person exchange a
transaction provides. An arrangement which brings together very
competent people and allows them to work side by side for extended
periods of time will transfer much more know-how than one where
the ability of one or both of the participants is limited and their asso-
ciation intermittent and shortlived. Even brief personal exchanges can
convey knowledge either not obtainable, or obtainable only with diffi-
culty, from books or documents.
Such a conclusion accords with common sense. The transfer of
knowledge is, after all, a matter of one man absorbing what another
man is presenting. That the effectiveness of the process depends on
the ability of both the learner and the instructor, as well as on the
amount of time they spend together, is not surprising.

V
What these observations suggest is that the task of controlling the
export of critical technology, although difficult, is not as large as it
appears and may, indeed, be manageable. If it is true that the really
Report of Defense Science Board Task Force. "An Analysis of Export Control of U.5
Technology-A DoD Perspective," Office of the Director of Defense Research and Engineer-
ing, Washington, 1976.







significant flows of technology occur through technical assistance or
training itwould appear that it is export transactions containing sub-
stantial amounts of these elements which need to be most closely inoni-
tored and regulated. Other mechanisms of technology transfer could
be largely ignored or. at the very least, treated as of lesser concern.
There are two important exceptions. One involves the exchanges
which take place in connection with plant visits and with negotiating
contracts. Normally, these would not involve the transfer of any sig-
nIicalit technology. Yet, where. the person seeking the information is
already highly knowledgeable, a very brief contact may be sufficient.
Such a person, l)v being in a position to observe the physical layout
of equipment and the )articular sequence of operations in a successful
plant, or to engage a competent manager or engineer in aprently
ea9ual professional conversation, could obtain valual)le help in solving
a technical problem without the donor being aware of it.
That this kind of thing occurs is well known. Following the May
1972 Summit Conference in which the U.S. and the USSR agreed to
promote the growth of commercial and economic ties between the two
nations. a tricde and soon a flood of Soviet commercial visitors beg an
coming to the 1.S. A recent count places the number .at 1500 annually.
It soon became apparent that the "commercial" visitors were dele-
gations of very competent scientists and engineers equipped with
precise itineraries covering the most technically advanced U.S. tfirns
:iud with decidedly less interest in buying sophisticated U.S. products
than in learniin every possible detail of their manufacture.
It was also shortly after the May 1972 Summit Conference that
U.S. firms seeking business in Moscow found that various Ministries
of the Soviet Government were requiring them as a precondition for
doing business to sign technical assistance protocols under which each
party promised to enter into very close and continuing exchanges of
the most advanced technology. Although essentially "a rreenients to
ar'ee" which promised no more than each party's "best efforts," these
protocols, together with the commercial visitor problem, raised ques-
tions as to whether the Soviet, were seeking to circumvent U.S. export
i'mtrols by these devices. They underscored the need for a better
mniderstandinig on the part of the U.S. Government of the precise
natulre of technology trouzfiers. It was. in fact, those, developments
which were partly responsible for the creation in 1974 of the Defense
Science Board Task Force on tie export of technology.
Since then this particular aspect of the prol)lem has, diminished to
some extent as U.S. firms have found through experience that, even
after numerous visits and protracted negotiations during which the
Soviets contimally press for more and more proprietary information.
the large and potentially profitable contracts for the sale of products
which the Soviets tyl)ically hold out as bait rarely materialize.
In the matter of visits, one area AwbichI needs furl her exploration
is that of scientific exchanges through academic institutions or crov-
nment-l o-governin t prolramis. In muny of these. Soviet experts
s5)end several inonths at a U.S. university or research center while
IU.S. experts spend equal ly extended lengths of time in the Soviet
Union working with their Soviet coumnterl)arts. These association are
certainly close and in un 1V ca es prlol!d. however. thwev a-re two
main argu(n ents against U.S. Government efforts to regulate them.








One is that the information exchanged tends to be in the realmu of
theory, basic research and laboratory experimentation, and for tile
U.S. Government to interfere in this Irocess even though the Soviet
Government openly does so, would be politicallyy repugnant since sUCh
action would impinge Oil scientific ini(uiry and academic freedom hm.
The second argument rests on the fact that, it is not in basic science
and theory but. in industrial know-how, systems managemiet and pro-
duction methods, in brief, in the technology of the factory rather t han
of the laboratory that the 1 .S. has predominance. Accordingly. to
restrict scienttiic exchanges would serve no )ractical purposes. Never-
theless, the impact of these exchanges is only imperfectly understood
and some additional stu(ly of them would be helpful.
The second important exception to the notion that only teclmial
assistance and training programs transfer significant amounts of techI-
nology relates to the sale of end products. While it is true that many
end products of sophisticated technology are not susceptible to "re-
verse engineering," that is to say, one cannot learn how to produce
them by dismantling a saml)le. it is also true that much of modern
teclinolog-y consists of the ability to use certain tools in production
and maintenance routines. Thus while tools and instruments, consid-
ered as end products, may not represent a transfer of design or mann-
facturing know-how, the seller normally must guarantee that, tiey
will meet performance specifications when operated by the buyer s
personnel. To make good this guarantee. extensive training of tlie
buyer's personnel in how to operate and maintain the equipment may
be required. As a result, critical technology can be exported on a
piecemeal basis and quite unwittingly because to all appearances only
an end-product is involved. This is why processing equipment with
operational know-how is high on the list of efficient transfer ineilha-
nisms.
There is vet, another sense in which control over production equip-
ment is important in relation to technology, and that is where the
critical technology is already known but what is lacking is the sophis-
ticated machinerv anl tools needed to exploit it. Know-how witliout
the means to apply it is of little practical significance. For this reason
the value of a teclinoloa'v alrea(ly available to the Soviets can be
limited if their access to the instruments required to fully use it can
be restricted. It is this reality which the Defense Science Board ovi-
ouslv had in mind when it ranked "process equipment without know-
how" in the mid-range of effective transfer mechanisms. It is also this
kind of end product that the Department of Defense has labeled
"keystone" and recommended be closely controlled as a means of
restricting technology because it is "equipment that completes process
line and allows it to be fully utilized."

VI
Before leaving the subject of end products, it should be noted that
there is a good deal of mmecessary confusion over the relative worth
of controlling the export. of end p)rodmuts as compared to technoly.
Because critical technology and closely related end products in the
form of keystone i)rodctmon equipment, awd instruments are of 1)ri-
nlary himportance, it emphatically does not follow that other end







products generally are of little military significance. For example,
the U.S. has inertial navigation systems, signal processing equip-
ment, sophisticated computers, microprocessors, and nigiit vision
equipment more advanced than anything the Soviets are currently
ablo to produce. To export such items would transfer little know-how
since the critical technology involved in their fabrication is not gen-
erally regarded as extractable. Yet the products themselves can make
a sig ificant contribution to Soviet military potential simply because
they perform better than anything the Soviets possess. Thus, such
end results of technology are placed under control not to protect tech-
nologrv but because of their direct military worth. Nor should this be
any cause for wonder. After all, the only 'reason a technology becomes
important is that it is the means for creating something of impor-
tance. If its end products have no military significance, a technology,
.no matter how sophisticated, would have no military significance.
This is why it is erroneous to arg-ue. as is sometimes done, that tech-
nolo(,v should be closely controlled but its end products freely ex-
ported. The correct argument goes in the other direction: When an
Ond product is sufficiently important to be controlled, it is even more
important than the technology and tools for its manufacture be closelv
controlled. Certainly, it would make no sense to restrict the export of
a particular item but at the same time provide the means by which it
(oaild be produced in unlimited quantities. Nor it is necessarily correct
to argue that control over products because they have a limited life
expectancy is a "short term" measure and therefore not as important
as control over technology because its effects continue over the long
term. The traditional concept of an embargo as a means of reducing
im adversary's war-making strength over an extended period of time
is not entirely relevant today. In the nuclear age, the decisive war may
be short as well as intense. IVeapons on hand may be more important
than those yet to be produced, and in some cases the numbers may not
have to be great, certainly not so great, that in the brief span of such
a conflict stockpiled end products could not be sufficient.
VII

Most perplexing of all the difficulties in the control of technology
transfers is what is known as the "dual-use" problem. It stems from
the fact that, while it is U.S. Government policy to restrict the export
of technologies of military significance, it is also IT.S. Government
policy to do so without interfering any more than is necessary with
peaceful trade.
The problem, however, is not with the policy, which is straight-
forwa rd enough, but with the fact that there are almost no militarily
significant technologies which do not also have important peaceful
uses. Indeed, in the highly industrialized modern world, while arms
and ammunition can still be identified, the distinction between imple-
ments of war and peaceful goods as well as the technologies for their
manufacture has become so blurred that whether an item is a sword
or a plowshare depends today not so much on how it is made but on
how and by whom it is used. For example, the advanced computers
employed to improve nuclear warhead design or carry out real-time
command and control functions in an air defense system also have







extensive commercial and scientific uses: the reactors which produce
nuclear material for weapons also pIro(luce electric power; tle tecli-
nology required to manufacture a ballistic missile is virtually identical
with that required to manufacture the launch vehicle for a weather
satellite. So common is this dual-use characteristic that it is almost
impossible to draw up a list of items, whether of goods or technology,
whose embargo will inhibit weapons (tevelol)ient without inc(ludingr
some items whose embargo will also inhibit the peaceful trade activi-
ties we wish to foster.
It is for this reason that export control decisions tend to be based
,on determining on a case-by-case basis that the commodity involved is
appropriate to its stated civil end us(- and that either the likelihood of
its diversion to military purposes is slight or the military contribution
it would make if so diverted would not he of great significance. (liven
the closed nature of Communist societies, and in particular the secrecvy
with which they shroud their military sector, such judgments are not
easy to make. But in the light of the stakes involved, such judo'lgenits
cannot be made carelessly. This is especially the case with technology
transfers. Where the export of a finished product is concerned, there
is some chance of determining that it went to its intended destination.
If it should be diverted subsequently, there are ways of detecting that
fact and reducing its value by shutting off follow-on spare parts and
maintenance support. Additional sanctions can be imposed in the
form of refusing any further export licenses for similar or even other
equipment to the same consignee. And, in any event, errors in judg-
ment where end products are concerned ten(d to be self-limiting for
the simple reason that items of hardware have both finite uses and a
finite life.
The case with technology is quite different. There is almost no
chance of determining, once it has been exported to a Communist coun-
try, just how it will be used. Its diversion to military purposes can
take place with little chance of detection. Even if its diversion is dis-
covered, it cannot be recalled nor its value reduced. Finally, its useful-
ness may not be short-lived and its products may continue for years
to make a significant contribution to the military potential of the
recipient nation.
VIII
One remaining matter to be dealt with is the question of effective-
ness of export controls. Quite comnmonly it is argued that, since the
Soviets have obviously acquired a number of once critical technolo-
gies, as demonstrated by their missiles and nuclear weapons, the ex-
port restrictions imposed by the U.S. and its allies have not been effec-
tive. This misstates the issue. It is unrealistic to expect that a system of
export restrictions can prevent a nation like the USSR from acquiring
over time any particular level of technology the West has developed.
Indeed, it can be assumiied that inadvertent leakage, clandistine acqui-
sition and indigenous development will combine to assure that this
takes place eventually. This process cannot be halted, it can only be
retarded. Thus, the true measure of effectiveness of controls over tech-
nology is how long the catch-up process takes. On that basis, the pres-
ent system scores well, for in a number of critical technologies, we ha ve
consistently maintained a lead over the USSR of two, five, and in some
instances more years.







Ix
The facts which have been set forth here are not newly discovered.
They have been well-known among export control officials of the gov-
eminent for years. As a consequence, it is long standing government
practice automatically to place under einbarcro to the Communist world
the technology to produce any end item which is considered significant
enough l o be itself embargoed. Moreover, although numerous excep-
tions to the embargo of end items are made each year on a case-by-case
basis, there have been only a handful of transactions where any sub-
stanitial amount of advanced Western technology has been licensed
for transfer to the Communist world. In mos4 such cases, as with the
U.S. technology supplied in 1972 to the USSR's Kama River truck
factory, important diplomatic considerations were involved. Apart
from such relatively rare instances,. there has been very little licensed
export of critical technology from the United States to the USSR or
its Warsaw Pact allies.
It is, of course, true that the V.S. Government does not restrict the
export to friendly countries of either diial-use end products or the
technology to manufacture them. But this i. on grounds of policy and
not a result of defects in the export control machinery. The question
which is now being raised is whether this policy should be changed.
Vhat is bein asserted is that, the liboralitv with which we have ex-
ported T.S. technology abroad to fiendlv- countries is redounding
to our detriment. Leavino aside tie economic aspect, which falls out-
side the scope of thise article, the security argument is that U.,S. tech-
nolo-y of military significance is finding its way to the Commnist
world through friendly countries to whomn we have been supplying
it without restriction.
Accordinglv, the Department of Defense in 1977 proposed that ex-
port controls be extended to cover the release of critical technology to
all destinations. The stated purpose is to enable the UT.S. Government
to regulate technology exports to non-Communist countries in terms
of the recipient's intent and ability to prevent either the compromise
or the unauthorized re-export of that technology. Defense is recoin-
wending that this policy be applied:
* without regard to whether the exporter is a government department or
agency, a (omitercial enterprise, an Ca deiIt' or hf n-nprofit institution, an indi-
vidual entrepreneur. or in the ease of re-export requests, a foreign government
or an international organization ; and without regard to the transfer inechanism
involved. e.g.. turnkey factories. Iievnse joint ventures, training, consulting,
engineering documents and technical data.6
Although these recommendations have h~een promulgated by the
Secretary of Defense as internal ouidanee to the Department of De-
fense with regard to its role in support of U.S. export controls, it is
not yet clear whether they will be adopted as government policy.
In this connection, export controls (wer the release of technology
from the U.S. directly to the Commnmist world are at present so com-
plete that it would be difficult to conceive of any substantial change ex-
eel)t in the (lireotion of relaxino" them. Bv comilarison. restrictions on
releases from the U.S. to non-Communist countries are meh looser,
so that any substantial change is likely to be in the direction of tighten-
6 "Interim DoD Policy Statement on Export Control of United States 'Technology." Office
of the Secretary of Defense, Washington, August 26, 1977.







iij- them. Aceordiiiglv. it i., plohlblv oily oi this latter trafli, tl ht
proposals to tighten ceit rols wou hl hav e an impact. Neve rt 1hs, if it
is true. as oiie claim. utt cl-i irt] I .S. t '.lnology is rea clin1r ( ()I-
nmunist nations through non-Commnin ist countries, national security
considerations would argue for itiore detective moina,.emeiit of releases
to friendly countries. On the otlier im1. national securit v colisidera-
tions also argue that we continilie to transfer critical techlnolo 'y to
countries with which the '.S. has a ma or security interest where such
transfers can streiigthen collective securitv. coitrihlute to veapolltS
standardization or interoperal ility. and maximize returns on U7.S. in-
vestment in research and development.
A reasonable approach might be to extend controls oin releases to
non-Communist countries only to the more eticient mechanisms of
transfer. This would mean that for given transactions,. and in particli-
lar those involving production e(puipmient and instruments, limits
would be established only on 1) the number and type of experts pro-
vidiuv training or technical aszzstince, 2 ) the duration and1 location of
such training or assistance and 8) the number of the pueha~er' per-
sonnel to whom training or assistance could he given. The preise de-
tails would doubtless vary with the 'artiular t(chnolo'v involved.
it in every case the central concern would be with these three factor.-.
IVhatever action i! ultimately tahen must al o recognize tle fact that
many of our major NATO allies, and Japan as well. are no longer de-
pendent on JT.S. technology to the extent they were a decade or two
ago. Today they possess and are ouite capable of generating sonhis-
ticated and critical technologies with little or no help from us. From
the standpoint of national security, what is important, awd what I.'-.
actions towards them must be desi,,.rned to encourage and foster, is
their willingness and ability to restrict the flow of such technology
whether theirs or ours in origin, to Communist countries.

x
The problem of technology transfer is a knotty one with many rami-
fications. Besides national security, there are other important issues
such as the irmact on TU.,q. domestic employment, foreign trade, in-
ternational political relations, and the economic growth and develon-
ment of friendly countries. Whether all of these can be dealt with in
some satisfactory manner may be debatable, but there are grounds for
believing that the national security aspects can be solved. Certainly
the identification of most if not all of the technologies which are critical
in relation to our weapons svtmns appears feasible. So. too, does the
task of discovering those items of production or test en i!ment whilh
are the unique instruments of these technologies. With such filct in
hand, it should be possible to focus upon the traiiin- and techniill
assistance components of any transaction and by limiting these com-
ponents to control effectively the more important transfers.
Tn any case, the problem i, one which important ,ind not likelv to
go away. It is also one which calls for wide and informed discussion,
both inside fnd outside of government. The more this discussion can
be freed from misconceptions as to the facts and the appropriated cri-
teria for weighing them. the more sound. one may hope, will he the
government policy which ultimately emerges.











Chapter 3. QUANTIFICATION OF WESTERN EXPORTS
OF HIGH TECHNOLOGY PRODUCTS TO COMMUNIST
COUNTRIES*
By HEDIJA, KRAVALIS, ALLEN J. LENZ, HELEN RAFFEL, AND
JoHN YOUNG
CONTENTS

Page
Summary --------------------------------------------------------34
I. Introduction ---------------------------------------------- 35
II. Measurement criteria ------------------------------------------35
III. Export composition and trends ----------------------------------- 37
IV. Summary and conclusion ---------------------------------------43
Appendix A --------------------------------------------------------- 44
Appendix B --------------------------------------------------------- 45
SUMM3,JEARY
There is a widespread presumption that the composition of U.S. and
Industrial Western country exports to the communist countries is dom-
inated by advanced technology items.
This paper quantifies U.S. and Industrialized West (IW) exports to
communist countries of "high technology products" in the machinery,
transportation equipment and instrumentation categories. U.S. and
IW exports of these products are measured and compared with total
U.S. and IW exports to communist countries. Data also are provided
on exports to communist countries processed under validated licenses.
Analysis of the U.S. and IW exports of the high technology prod-
ucts defined in this paper reveals that:
Communist countries, taken together, purchase a relatively small
share of total IW high technology product exports (approxi-
mately 5-7 percent) ;
The share of high technology products in total IW exports to
communist countries (12.6 percent in 1976) is similar to the
high technology products share in IW exports to the world
(10.9 percent in 1976) ;
In spite of rapid growth of IW exports to communist countries,
the share of high technology products in those exports has re-
mained relatively constant:
The U.S. is the fourth leading IW exporter of high technology
products to the communist countries, accounting in 1976 for
*The authors are from the Office of East-West Policy and Planninz, industry and Trade
Administration. Department of Commerce. This paper was prepared to stimulate diseus-
sion and does not necessarily reflect the views of the Department of Commerce or the
U.S. Government.
(34)







12.7 percent of such IW exports, while the U.S. share of IW
high technology products exports to the world is a[)proxi-
mately 10 percent;
U.S. exports of high technology products accounted in 1976 for 9.3
percent of total U.S. exports to communist countries, in comIpari-
son with a 17.2 percent share in U.S. exports to the world, and
Analysis of exports to communist countries processed under vali-
dated license reveals that very small shares (1 to 3 percent.) of
U.S. exports were judged to have enough potential application
to communist country military industrial production to inerit
evaluation under the validated license procedure.
This preliminary analysis suggests the "high technology" content of
U.S. and IW exports to communist countries does not differ markedly
from the "high technology" content of U.S. and I.W. exports to the
world as a whole.
I. INTRODUCTION
Much Western discussion of East-West economic relations presumes
that the composition of Western exports to communist countries differs
markedly from Western exports to other advanced Western countries
or to developing countries. In particular, communist country govern-
ments are said to be mounting a concerted and unusually single-minded
effort to acquire adv-anced Western technology. This effort is said to be
motivated not by desire to foster long term expansion in East-West
economic relations based on normal principles of comparative advan-
tage but instead by a need to shore up stagnating communist economies
with the one-tine infusion of Western technology. By this interpreta-
tion the West is reaping only transitory gains while risking the crea-
tion of strong potential competitors on world markets, shoring up
undesirable political regimes, and endangering Western military se-
curity throlghl the indirect buildup of the military industrial cap/abil-
ity of adversary countries.
""hile it is true that Western countries have exported significant
quantities of highly processed manufactured goods to communist counl-
tries, products which traditionally have been viewed as embodving
advanced technology, it has not been demonstrated that i)atternIi of
Western export of technology to communist countries are atypical in
the context of generalized Western exports of technology. Indeed, the
results of this analysis indicate that Western exports to communist
countries do not emphasize "high technology" products compared with
exports to other Western trading partners.

II. MEASUREMENT CRITERIA

Technology is commonly defined as "the application of scientific
knowledge to practical purposes," or more generally as "know-how."
The transfer of technology, then, involves the transfer of capability.
This is an inherently difficult process to measure, particularly for
transfer of disembodied technology. Previous studies have used prod-







net exports to represent flows of embodied technology, and various
criteria have been emplove(l to identify "hio'h technology" products.
Soine of these criteria, however, fail to account for the critical transfer
of know-how and the subsequent ability to replicate and diffuse the
acquired technology.
To meet these requirements, most researchers have focussed on in-
dustrial plant and equipm-ient as principal vehicles of embodied awd
transferable technology. At the same time, because exports of plant
and equipment frequently are accompanied by licensing, technical
assistance, and other forms of disembodied technology transfer (espe-
cUillv in exports to conmnunist countries), plant and equipment exports
are probably one of the better proxies for technology export in general.
Regardless of the criteria employed, measurement of embodied tech-
nology flows runs into problems of trade data collection and classifica-
tion. First, international trade data are not sufficiently detailed to
distinguish precisely between levels of technology. For example. at the
lee i of greatest disaggregation provided by U.N. data in the "Office
Machine" category, SITC 7142 includes both electronic computers of
varying degrees of sophistication and more mundane calculating and
accomting machines. For this reason any set of trade data categories
tends to overstate the volume of exports embodying truly advanced
technology in individual item categories. Second. there is difficulty in
deciding exactly which categories of products should be considered as
embodyino or having a potential for embodying "high technology."
There is no generally accepted list of such products, and any listing
would change over time with the advancement of technology in dif-
ferent areas. Finally, products in a category omitted from a selected
list of high technology items might incorporate critical inputs em-
bodying advanced technology, thereby possibly justifying their inclu-
sion on the list.
Notwithstanding these shortcomings, useful insights on the export
of Western technology can be derived from analysis of international
trade data. Reflecting the interest in industrial plant and equipment,
certain analyses have classified as "high technology products" all
products placed in Standard International Trade Code Classifications
7 (Machinery and Transport Equipment) and 86 (Professional, Sci-
entific, and Controllig Instruments). While these may be the appro-
priate general categories for analyses, results can be improved by
disaigregating to those 4- and 5-digit product categories which are
likely to contain products embodyig world "best practice." Such
exports may be expected to make a proportionately greater contribu-
tion to advance receipient country state-of-the-art. To accomplish this
imp rovement, a refined list of "high technology products" was derived
by the Office of East-West Policy and Planning of the Bureau of East-
West Trade in consultation with commodity specialists in the Office
of Export Administration. This is presented in Table 1. Product cate-
'ories in Classifications 7 and 86, that were excluded from this list are
presented in Appendices A and B.










TABLE ].-HIGH TECHNOLOGY ITEMS r

SITC Description

71142 ----- .............. Jet and gas turbines for aircraft.
7117.. Nuclear reactors.
7142 --------------------- Calculating machines (including electronic computers).
7143 --------------------- Statistical machines (punch card or tape).
71492 --------------------- Parts of office machinery (including computer parts).
7151 ............. -------- Machine tools for metal.
71852 ------------- -------- Glass-working machinery.
7192 --------------------- Pumps and centrifuges.
71952 ------- Machine tools for wood, plastic, etc.
71954 Parts nd accessories for machine tools.
71992 ---------- -- Cocks, valves, etc.
7249- .Telecommunications equipment (excluding TV and radio receivers).
72911 ------------------- Primary batteries and cells.
7293 -.... Tubes, transistors, photocells, etc.
72952 ......... ........... Electrical measuring and control instruments.
7297 Electron and proton accelerators.
7299 ---------------------- Electrical machinery, n.e.s. (including electromagnets, traffic control equipment, signalling
apparatus, etc.).
7341 ............. ....... Aircraft, heavier than air.
73492 --------------------- Aircraft parts.
7351 -._.. _.. ---. ...- W arships,
73592 -----......... Special purpose vessels (including submersible vessels).
8611 .------------------- Optical elements.
8613 .................... Optical instruments.
86161 ................... Image projectors (might include hclograph projectors).
8619 ---------------------- Measuring and control instruments, n.e.s.

This definition of high technology deletes a number of SITC 7 and 86 items included in some previous analyses. The
items deleted by this formulation are Isted in app. A. Items not included in this report's definition of high technology, tul
deemed by some analysts to occasionally include high technology items are noted in app. B.

111. EXPORT Com3wosIT1oN ADT TIENDS

Utilizing the above definition of highh teehnoloy products". data
are presented in this section on the export of the,-e commodities lIv the
U.S. and the Industrialized Ailest (IW )' to com umU1it coititries.2 III
line with previous argullments on the validity of usilU coummuoditv eX-
port data as a reasonable proxy for general export of technology, the
following tables are of value in :
i)eterinining the commodity and technical composition of tech-
nolo,,- export;
Establishing trends in the volutine of technology exports;
Comparing the volume and importance of teclnology exports to
communist countries with the volume and importance of tech-
nology exports in world trade as a whole, and
I)eterniIini" the relative inlportatiee of alternative We-.tet'ni
sources of Supply of technology to collullthist cotlutries.
In fact. as a proxy for technology transfer in genlera], conimoditv
export data are almost certain to o( r.(tat(t the relative itt portanice
of W technology export to communist countries in( j)Ur. of wh
1'Y technology export in general. Although the impact is not quanti-
fiable, the significantly freer inovement of literature and especially
people among IW countries in contrast to the East-W est di ension
implies that a probably higher share of technology transfer among
non-conununist nations is carried out through "disembodied" modes.

a The 15 lndustrialtzed Western countries are : U. Canada, Japan, Bel'ium-Luxenahcmr!z,
France, Federal Republic of Germany. Italy, Netherlands, Austria, Norway, Sweden,
Switzerland, United Kirndon. and Denmark.
2Bulscaria, Cuba, Czechoslovakia, GDR, Hungary, Poland, PRC, Romania, U.S.SR.,
Yugoslavia.











TABLE 2-COMPARISON OF HIGH TECHNOLOGY EXPORTS WITH TOTAL EXPORTS OF 15 I.W. COUNTRIES TO THE
WORLD AND TO THE COMMUNIST COUNTRIES, 1976, 1974, 1972
[Amounts in millions of U.S. dollars]

1976 1974 1977
Percent Percent Percent
Distination (IW exports) Amount of total Amount of total Amount of total

U.S.S.R
High technology ------------------------ $1,627 14.0 $1,036 16.6 $582 17.5
Total --------------------------------- 11,653 ------------6,250 ------------3,317
EE:
High technology ------------------------ 1,525 12.0 1,223 10.8 619 12.1
Total --------- ------------------ 12, 757 ------------11,322 ------------5,098
Yugoslavia:
High technology ------------------------ 561 13.9 482 10.7 270 12.8
Total --------------------------------- 4,034 ------------4,503 ------------2,117
Cuba:
High technology ------------------------- 83 8.8 42 5.1 27 10.5
Total --------------------------------- 942 -------------817 -------------257
PRC:
High technology ------------------------ 343 10.0 414 9.5 64 4.5
Total --------------------------------- 3,423 4,369 -------------144
Total all Communist countries:
High technology -------------------- 4,140 12.6 3,197 11.7 1,562 12.8
Total ----------------------------- 32, 808 ------------27,261 ------------12,234
World:
High technology ---------------------64, 366 10.9 49, 314 9.9 29, 092 10.7
Total --------------------------------- 590, 833 -----------498, 470 -----------273, 045 --


Table 2 presents annual data on 1V high technology product ex-
ports to communist countries and the world as a whole. Inlnediately
apparent is the small share of such 1W exports destined for communist
colltries-6.4 percent in 1976 and 5.4 percent in 1972. Thins suggests
that communist countries have not been and are not likely to become
such a dominant force in the marketplace that they could exert sig-
nificant pressure or Western suppliers of advanced technology. even
assuming that communist countries would (or could) act collectively.
Second, the share of 1W high technology product exports in total 1W
exports to communist countries does not differ markedly from the
respective share in 1W exports to the world. In 1976, the respective
figures were 12.6 percent and 10.9 percent.
Third, while the total volume of IW exports to the world is a whole
and to communist countries has increased dramatically in the 1970"s,
there is no discernible trend suggesting that 1W high technology pro-
duct exports to communist countries will increase or decrease their
share in total 1W exports to communist countries. In 1972, the share
of high technology products in exports to communist countries was
12.8 percent; in 1976, the share was 12.6 percent. In sort, by w world
trading standards, high technology products do 'not dominate in ex-
ports to communist countries, are not large in volume, and are not
experiencing any mark-ed shift in relative importance.
In addition, the thrust of these conclusions remains valid when 1W
high technology exports are expressed as a portion of manufactured
goods exports (SITC 5-8) to eliminate the effects of Western exports
of agricultural products. For example, the shares of high technology







exports in 1W manufactured exports to the world were 13.6 percent
in 1972, 12.9 percent in 1974, and 14.1 percent in 1976. The respecti e
shares for 1W exports to communist countries were 14.8 percent in
1972, 13.5 percent in 1974, and 15.2 percent in 1976.
Table 3 lists principal 1W high technology product exports to all
communist countries; table 4 shows similar exports to the U.S.S.I .
In both cases, machinery and related equipment are prominent, re-
fleeting communist government drives to simultaneously expand and
modernize industrial capacity. Much imported machinery is adapted
for numerical or computer-numerical control. These imports and in-
strumentation imports will further automate communist country pro-
duction processes and increase industrial productivity.
Data presented in table 5 illustrate the relative importance of 11V
trading partners of the U.S.S.R. as suppliers of high technology prod-
ucts to the Soviets. These high techlolo'y export shares of 11V
countries are similar to their respective shares of all manufactured
exports to the U.S.S.R., e.g., in 1976, the U.S. avcounted for 12.i% of
1W high technology product exports and 8.7 percent of 111 manu-
factured goods exports to the U.S.S.R. Also, the shares have been
relatively stable, with the exception of the marked gain of the U.S. in
the early 1970's. However, while in 1976 the Umned States supplied
12.7 percent of 1W high technology product exports to the U.S.S.R.,
it supplied 30 percent of IW high technology prodtict exports to the
world.
TABLE 3.-TOP 5 HIGH TECHNOLOGY IW EXPORTS TO THE COMMUNIST COUNTRIES. 1976
Percent of
total high Percent of
Value technology total
SITC Item (billions) exports exports
7151 Machine tools for working metal -------------------------- $1. 110 26.8 3.4
7192 Pumps and centrifuges ----------------------------------- .648 15.7 2.0
7299 Electrical machinery and apparatus, n.e.s ------------------- -.451 10.9 1.4
71992 Taps, cocks, valves, n.e.s ..................................438 10.6 1.3
72952 Electrical measuring and controlling instruments, n.e.s .........255 6.2 .8
Top 5 total ------------------------------------- 2.902 70, 1 8.8












TABLE 4.-1976 IW HIGH TECHNOLOGY EXPORTS TO U.S.S.R.

[Dollar amounts in thousands of U.S. dollars


1976
SITC Commodity rank 1976 value


Percent of Cumulative
total percent 1975 value


Percent of Cumulative Percent of Cumulative
total percent 1974 value total percent


M achine tools for m etal ---------------------..
Cocks, valves, etc ............. ......
Pum ps and cen rituges ----------- .... .. ... ..
Electrical machinery, n.e.s -------
Electrical measuring and control instruments ...............
Measuring and control instruments, n.e.s .. ...........
Special purpose vessels (including submersible vessels)
Parts and accessories for machine tools ... .. ...........
Statist;cal machines (punch card or tape)
Machine tools for wood, plastic, etc-
Telecommunications equipment (except TV and radio re-
ceivers)...
Parts of office machinery (including computer tarts)--
Calculating machines (including electronic computers) .......
Glass-working machinery -
O ptical instru m ents .. ... . ... .... ............ . .. ...
Tubes, transistors, photocells, etc -----. .. .
Im age projectors ..... .. .. ... .. . .. .
Optical elements- .
Jet and gas turbines for aircraft ----------
Electron and proton accelerators -_
Primary batteries and cells -..
N uclear reactors --------..----- ...... .... .. ..
A irc ra ft p a rts . .. .. . .. . .. .. .. .. . .. .. . .. ..
A aircraft, heavier than air -- -------------------------------

High technology exports_-_
Total exports -.............. ....


_(1)
(2)
( (3)
(4)
_(5)

_(7)
( 8)
(9)
_ (10)
_ (11)
(12)
(13)
(14)
(15)

(17)
(18)
_(19)
(20)
(21)
(22)
(23)
(24)


1576,851
252,634
245, 02
139,606
94 ,o5
69,097
68, 401
55. 785
44, 481
20, 888

20,452
10, 799
7,110
7,097
6,219
3,205
1,916
581
535
463
444
343
195
55

1,627,106
11,653,042


5.0 $550,251 5.1
2.2 283,109 2.6 __ ....
2.1 167,362 1.6 .... .
1.2 211,335 2.0 ------
.8 11.2 102,149 1 0
.6 60,171 .6
.6 15,622 .1 ------
.5 49,300 .5
.4 _..... ... ... 35,163 .3 ---- --
.2 13.5 41,702 .4

.2 17,690 .2
.1 -- 8,259 .1 -----
.1 7,897 .1
.1 8,352 .1
1 13.9 8,818 .1
0 5,412 .1
0 793 0 .. ..
0 1,315 0
0 --------- 187 0
0 14 0 218 0
0 97 0
0 --------- 0 0
0 148 0
0 5,172 0

1,583,522 ------------------
10,714,789 ------------------


$448,796
------ 107,840
107,823
119,734
12.3 53,409
41,237
30,937
31,901
__ 14, 579
14.2 30,410

16,808
4,064
7,281
--- 11,139
14.7 4,322
3,225
927
873
85
14.7 0
10
. 0
242
. 439

------ 1,036,208
6,250,003


7.2
1. 7
1.7
1.9
.9 13.4
. 7 --. - -- -
.5
.5
.5 15.8

.3
.1 . . .

. 2 - - - -
.1 16.5
. 1 . . . . .
0
0 .. .. .

0 16.6
0 -- -- -
0
0 . . . . . .
0 -. .- - .-


14.0 -14.8 16.6---- 14


7151
71992
7192
7299
72952
8619
7 3592
71954
7143
71952
7249

71492
7142
71852
8613
7293
8u161
8611
71142
7297
72911
7117
73492
7341


High technology as percent of total IW exports-


16 6 - - - - - - - - - - - -















TABLE 5.-IW SOURCES OF SOVIET HIGH TECHNOLOGY IMPORTS AND MANUFACTURED GOODS IMPORTS
[Dollar amounts in millions


Source country


United States ----------------- ..
C anada ---------- ---------- ----
Japan-.-
Belgium Luxembourg -----------
F ra nce --. . -. .. ....
Federal Republic of Germany-
Italy-
N etherlands ----- --------. .....
A u stria --- --- -- -- -- -- -- -- -- --
Norway .... . .. .
Sw eden --------------
Sw itzerlmnd .................. ...
United Kingdom ............ .. .
D enm ark .. .... ... ... ... .


1972 1974 1976

High technology Manufactured High technology Manufactured High technology Manufactured
imports imports imports imports imports imports
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent

$39.008 6.7 $102.5 4.2 $137.581 13.3 $294.4 5.3 $207.109 12.7 $794.1 8.7
1.330 .2 13.8 .6 .729 .1 13.2 .2 8.587 .5 50.6 .6
83.916 14.4 492.3 20.2 88.559 8.6 1,052.8 19.0 225.506 13.9 2, 10,0 23.6
......... 2,690 .5 80.1 3.3 13.685 1 3 347.5 6.3 14.390 .9 257.0 2.8
66-0/7 11.3 271.9 11.1 155.501 150 546.1 9.9 177.187 10 9. 963.3 10.5
209.484 36 0 699.3 28.7 352.446 34.0 1,805,6 32.6 50,.777 34.5 2,625.7 28.6
62.463 10.7 255.6 10.5 78.713 7.6 599.0 10.8 136.713 8,4 9596 10.5
2.315 .4 40.8 1.6 41.214 4.0 104.7 1.9 39 148 2 4 129.3 1 4
9.036 1.6 93.0 3.8 20.446 2.0 188.4 3.4 38.469 2.4 237.1 2.6
---. 417 .1 18.4 .7 1.316 .1 38.7 .7 7.231 .4 69.3 .8
11,769 2.0 66.2 2.7 41 197 4.0 156.5 2.8 49 265 30 254.9 2.8
32211 5.5 69.0 2.8 63.511 6.1 142.0 2.6 100.503 6.2 200.7 2.2
------- 56-062 9.6 202.2 8.3 36.931 3.5 230.1 4.2 53.594 3.3 407.1 4.4
.. ... . 5.662 1.0 23.6 .9 4.919 .5 28.6 .5 8.627 .5 60.4 .7


----------. --. ---. -. 582.440 100.0 2,430.4 100.0 1,036.208 100.0 5, 545.8 100 0 1,627.106 100.0 9,169.3 100.0


Total .-







Finally, Table 6 presents 1976 U.S. high technology product ex-
ports and total exports to each of the communist countries and to the
world. The $366.3 million of high technology product exports to com-
munist countries equalled 9.3% of the $3.9 billion of total U.S. ex-
ports to these countries; in contrast, U.S. high technology product
exports to the world of $19.1 billion constituted a 17.2 percent share
of these products in total U.S. exports to the world. These data sug-
gest that U.S. exports to communist countries do not contain unusu-
ally large shares of high technology products, but instead tend to con-
tain a lower portion of high technology products than U.S. exports to
the world as a whole.
TABLE 6.-U.S. HIGH TECHNOLOGY EXPORTS TO THE COMMUNIST COUNTRIES AND TO THE WORLD, 1976
[Dollar amounts in thousands
High Percent
technology Total high
exports exports technology
Exports to:
Cuba .----------------------------------------------------- $3 $89 3.4
People's Republic of China ....................... 22, 907 135, 390 16.9
Yugoslavia 60, 307 296, 882 20.3
Bulgaria ---------------------------------------------------- 2,872 43, 320 6.6
Czechoslovakia-- 8,716 147, 470 5.9
German Democratic Republic ................................... 1,462 64, 770 2.3
Hungary ----------------------------------------- ---------- 4,068 62,960 6.5
Poland 38, 703 621,040 6.2
Romania 20, 158 249, 030 8.1
U.S.S.R 207, 109 2,305, 930 9.0
Total Communist countries 366, 305 3,926,871 9.3
World ---------19, 445, 897 113, 323, 145 17.2

The data presented up to this point suggest that the volume of U.S.
and 1W exports of high technology products to communist countries
is not great and the general composition not unusual. But while such
aggregate data may be useful in evaluating the general economic im-
pact of 1W technology exports, specific exports of advanced products,
though insignificant in value terms, could still be of a significant bene-
fit to the military capabilities of potential adversaries, and thereby be
a matter of Western concern. The U.S., of course, controls the exports
of products and technology with potential military-industrial appli-
cations. Generalizing, the export control procedure identifies prod-
ucts with significant potential military applications and requires that
a validated license be obtained before such "controlled" products are
exported to communist countries.3 The Office of Export Administra-
tion (OEA) issues the validated license only after a detailed review
insures that no significant national security risk is created by export
of the product. Export of all other products may be made under a
general license, which does not require a case-by-case review.
OEA has issued estimates of the proportion of total U.S. exports
to East Europe (Bulgaria, Czechoslovakia, G.D.R., Hungary, Poland
and Romania), the U.S.S.R. and tie PRC that went out under vali-
dated license, as opposed to the general license that is sufficient for the
export of non-strategic products. These estimates are as follows:
I Export controls may be applied for foreign policy a nd short supply reasons as well as
protection of U.S. national security. Protection of nati,,il so,rritv is the pertinent justi-
fication for virtually all controls applied on exports to communist countries.







Percentage of U.S. Exports to Eastern Europe, [.S.S.R., and tRC
under validated license
Time period: Percent
3rd quarter 1974 --------------------------------------------------- 1.8
4th quarter 1974 ---------------------------------------------------- 2.7
4th quarter 1976 -------------------------------------------------- 3. 1
1st quarter 1977 -------------------------------------------------1. 1
These data suggest, iirst, that the share of 1.S. exports to communist
countries falling under detailed review procedures for items having
even the potential for direct military industrial application is signiti-
cantlv lower than the shares of high technology product exports cal-
culated using commodity export data. Second, inasmuch as validated
licenses are required for export of an important share of those coin-
inodities that, in addition to their military relevance, are recognized
to play a leading role in general industrial state-of-the-art advance-
ment. the OEA data suggest that the high technology export shares
calculated in this paper using commodity data may tend to overstate
levels of IT.S. export to communist countries of truly "high technology
productss.'
IV. SU MIMARY AND CONCLUSION
Analysis of U.S. and IW exports of the high technology products
defined in this paper reveals that:
(Comumnit countries, taken together, purchase a relatively small
share of total IW high technology product exports (approxi-
ii at clv 5)7 percent),
The share of higlh technology products in total IW exports to com-
imimnst 'omtries is similar to the share of high technology prod-
ucts in IW exports to the world;
In spite of rapid growth of IW exports to communist countries,
the share of high technology products in those exports has re-
mained relatively constant;
The U.S. is the fourth leading IW exporter of high technology
products to the communist countries, accounting in 1976 for 12.7
percentt of such 1V exports, while the U.S. share of BV high
technology product exports to the world is approximately 30
percent;
U.S. exports of high technology products accounted for 9.3 per-
cent of total U.S. exports to communist countries, in comparison
with a 17.2 percent share in U.S. exports to the world; and
Analysis of exports to communist countries processed under
validated license reveals that very small shares (1 to 3 percent)
of U.S. exports were judged to have even potential for ap-
plication to communist country military industrial production.
In terms of high technology content, this preliminary analysis
suggests that U.S. and IW exports to communist countries do not
differ markedly from overall U.S. and IW export patterns. To the
degree that commodity flows are a reasonable proxy for trends in
the flow of technology as a whole, the same conclusion is valid for
!,'eneralized technology transfer. Indeed, embodied technology trans-
fer (in products) is probably relatively more dominant in technology y
transfer to communist countries than is the ease within the DV com-
munity: thus, analyses such as this one, that by necessity ignore the
modes of disembodied technology transfer, will tend to overstate the
relative importance of technology transfer to communist countries in










comparison with the level of technology transfer in the world as a
whole.
If communist governments are pursuing a strategy of preferential
imports of high technology from the West, this analysis suggests
that they have not been markedly more successful than other IU.S.
and 1WV trading partners. All countries turn to the West for those
products for which the West has a genuine comparative advantage-
high technolog(Yv products. It is evident that 17.S. and COCOM export
control regulations significantly (and appropriately) restrict or
eliinnate coImunist country imports of advaiiced products and tech-
nologies. I!lowever, this denial i l other special features of East-W est
economic relations have not prevented rapid expansion of East-W est
economic exchano'e that is not sharply different from patterns of West-
West anld North-South economic exchange es.


APPENDIX A

MACHINERY, TRANSPORT EQUIPMENT AND INSTRUMENTATION ITEMS FROM SITC 7 AND 86 THAT WERE NOT
CLASSIFIED AS HIGH TECHNOLOGY IN THIS REPORT

SITC Description

7112 ......... -...... ....... Boiler house plant.
7113 ....... ........ ------- Steam engines.
71141 .. ................... Internal combustion engines for aircraft.
7115 Other internal combustion engines.
7116 --------------- ---- Gas turbines, excluding for aircraft.
71189. Other engines, n.e.s.
712 .... Agricultural machinery and implements.
7141 .....................Typewriters and checkwriting machines.
71491..--- ----------.Duplicating, addressing, etc., machines.
7152 .. ... ...... ........ Metil-working machinery, exc. machine tools.
717 Textile and leather machinery.
7181 Pulp, paper and piper article machinery.
71821 ... ........... ......- Bookbinding m machinery.
71829. Printing machinery, n.e.s.
7183 ......... ...........- Food-processing machinery
7184 ... ... ............. .-Construction and mining machinery, n.e.s.
71851 ... ... .........- Mineral crushing, sorting, etc., machinery.
7191 Nonelectric heating and cooling equipment.
7193- Mechanical handling equipment.
7194 .. ..... ..........-Domestic appliances, nonelectric.
71953 .. .... ...... .......-Motorized hand tools, nonelectric.
7196 --------------- Other nonelectric machines (including packaging and weighing machinery, vending ma-
chines, etc.).
7197 -------..------------.. B earings.
7198 .--------------------- Nonelectric m achinery, n.e.s.
71991 ------------- Foundry and other molds.
71993 ------- Transmission shafts, etc.
71999 ..... .. . ... .....- Nonelectric machinery parts, n.e.s.
722 ........ Electric power machinery and switchgear.
723 --- Machinery for distributing electricty.
7241 -- TV receivers.
7242 ------------------ Radio receivers.
725 ..... .. .... .... Domestic electric machinery.
72912 ... .. ... ............- Storage batteries.
7292 ........ ............. Electric lights.
7294 ...... Automotive electrical equipment.
72951 ... ... ... ..........-Electric supply meters.
7296 ---------.- -------- Electro-mechanical hand tools.
731 .......... Railway vehicles.
732 ..... ......-.. Road motor vehicles.
733 ------- Road vehicles, nonmotor.
73491 Airships and balloons.
7?53 -------- Ships and boats excluding warships.
7358 .... ...... ............-Ships, etc., for breaking up.
73593 ....... ...........Floating structures excluding vessels.
8612 ....... Eyeglasses and frames.
8615 _.-.. .. --.... Movie and sound equipment.
86169 ... .......... ... . Photographic equipment, e.n.s.
8617 Medical instruments, n.e.s.
8618 Nonelectric meters and counters.
862?.............. ......... Photographic chemicals in measured portions.
863 ------------------- Developed movie film.

Note: In addition, the items described in app. B were omitted from our high technology list, although with a lesser
degree of certainty.







415


ArrxlX 11

ITEMS WHICH SOME OF THE OEA SPECIALISTS SUGGESTED MIGHT CONTAIN IMPORTANT HIGH TECHNOLOGY
PRODUCTS, BUT WHICH WE CHOSE TO OMIT FROM OUR SELECT LIST

SITC Description Remarks

.-------------- Steam-generating boilers ------------ Might include nuclear plant types, but these are highly
developed in U.S.S.R. as well.
1181 ------------- Water turbines ..............--..... Hydoelectric turbine technology is also very advanced
in the U.S.S.R.
71822 -------------- Type making and setting machinery -- Advanced models have built-in computers.
71994 -------------- Metal-plastic joints (gaskets) -------- ne model (viton) is made of high technology plastic
material.
726 -------------- Electromedical and X-ray apparatus .- Perhaps some is classifiable as high technology.
8614 Photographic cameras ------------ High-speed cameras might be considered high tech-
nology.
8624 --------------- Photographic plates, tim, etc ------ Some are of advanced type.
8641 -- Watches __ Some are high technology consumer products.
8642 -------- ------- Clocks -----------------------...... Perhaps some are high technology.

Note: In fact, if these items are added in, the effect on dollar volume calculations is slight. For example, ftr the U.S.S.R.
in 1976, the fraction of total imports-from the IW that would be classified as high technology imports uder the augmented
definition would be 14.6 percent instead of the 14 percent provided by the narrower definition (see table 3). For the lU.S.S.R.,
steam generating boilers and electroinedical and X-ray appiratis composed 72 percent of the value of the items in tnis
additional list in 1976.












Chapter 4. THE ROLE OF WESTERN TECHNOLOGY IN THE
SOVIET ECONOMY
By GEORGE D. HOLLIDAY*
CONTENTS
Page
The Stalinist model of economic development ---------------------------46
The post-Stalinist model -------------------------------------------- 49
Technology absorption and Soviet resource allocation -------------------- 56
Increasing interest among Soviet economic policvmakers in borrow-
ing Western technology is largely the result of the emergence of a
new Soviet economic growth strategy. While the traditional approach
(the "Stalinist model") was to promote economic growth by rapidly
increasing capital and labor inputs, the new growth strategy em-
phasizes technological change as a primary factor in Soviet economic
growth. In this paper, the change in Soviet economic policy and its
implications for Soviet foreign economic relations are explored. In
a(ldition. the implications of increasing imports of Western technology
for Soviet decisions on resource allocations are examined.
TiiE STALINIST MODEL OF EcoNomIC DEVELOPMENT
What has come to be known as the Stalinist model for economic
development was initiated during the First Five-Year Plan and lasted
until well after Stalin's death. The model was quintessentially a
strategy for rapid industrialization. Stalinist economic planners be-
gan with an economy which had a large capacity for producing. agricul-
tural products and a relatively small capacity for producing ma-
chinery, equipment and the other industrial goo(s which provide the
means for industrialization. Their task during the First Five-Year
Pun was to restructure the economy in order to provide an industrial
base for future growth. This required both a maior reallocation
of resources and a fundamental change in Soviet industrial tech-
nology. These structural changes were to be largely accomplished by
193. A corollary prerequisite was to create a new economic adminis-
tra tive apparatus which could exert the necessary controls over econom-
ic" resources.
The, reallocation of resources was accomplished largely by ehain-
nelin labor, capital and materials into the "leading sectors" of the
eonomv (primarily heavy industry), while minimizin outlays on
non-Lrowth promoting an(l non-defeiie sectors. Soviet planner-
oporated with what has been described as a simple set of imperatives:
*Thp author is an Analyst In International Trade and Finance, Congressional Research
Sprv i c'






47

(1) Allocate to the military the resources needed to fulfill strategic goals,
and lay aside the minimum requirements for consumption and the develop-
ment of the economic infrastructure;
(2) Maximize the flow of resources into heavy industry and specify how
the resources are to be combined to maximize output; and
(3) Distribute the residuals to non-priority sectors, such as agriculture and
light industry.1
Implicit in these imperatives was an unbalanced growth pattern, with
some parts of the economy growing at the expense of others. Another
essential element was a very high investment (and savings) rate, with
the consequent deprivation of the consumer.
In changing Soviet industrial technology, Soviet planners relied
heavily on foreign trade during the First Five-Year Plan and mnade
little use of it thereafter. Large amounts of raw materials-particu-
larly timber, petroleum products and grain-were exported to pay for
a, massive influx of new machinery, equipment and industrial mate-
rials from the industrial West. Western technology transfers, which
had already begun to play a significant role in the Soviet economy.
increased dramatically. Like domestic resources, imports of capital
and technology were concentrated in a small segment of the economy.
As described by Soviet economists and 1)olicylnakers, there were two
major aspects of Soviet foreign trade policy. First, Soviet foreign
trade was import oriented: it was valued primarily for the contribu-
tion imports could make to the industrialization process. Goods were
exported only to pay for imports. In the words of a Stalinist foreign
trade official, "... the main task of Soviet exports is to accumulate
foreign exchange resources through the sale of Soviet goods abroad
to pay for Soviet imports." 2 Secondly. the goal of foreignl trade w as-
iml)ort substitution-to rid the Soviet Union of the need for further
imports:
* The necessity of faster tempos of industrialization, of a creation of
high-powered metallurgical and nmachinebuilding industries in the shortest pos-
sible time demanded an expansion of our trade relations with capitalist coun-
tries in order to utilize their advanced technology for the quickest realization of
our goals. This posed the problems of not wasting foreign exchange on items of
secondary importance, but importing as much as possible and as quickly as
possible the machinery and metals needed to create heavy industry and to freo
the country from the need to import machinery and equipment * S
Given such an import substitution statee, a cutback of imports at
some time in the future was predictable. In fact, because of severe bal-
ance of payments problems the curtailment of imports was more abrupt
than planned. Imports of Western machinery and equipment peaked
in 1931, and there was a sharp cutback. beginnings in 1932 and acceler-
ating in 1933. In the five years preceding the First Five-Year Plan,
annual imports of machinery and equipment avera-'ed approxiInat ly
0.3 billion rubles. During the First Five-Year Plan, they averauoed
1.4 billion rubles, and during the Second Five-Year Plan, they fell
back to the previous level of 0.3 billion rubles.
I John P. Hardt and Carl Modig. "Stalinist Industrial Development In Soviet Russia."
In Kurt London. ed., The Soriet Union: a Half Centurj of Communism (Baltimore: The
Johns Hoipkins Press. 196R). p. 310.
2 DmItrii Dmitrievieh Mishustin, Vneshniaia torgorlia i industrializatsiia SSSR (Mos-
cow: Izdatel'stvo Mezhdunarodnala knira, 1938). p. 1).
3 Dmitril Dmttrievteh Mishustin. Sotsiolisticheskaia monopoliia vneshnei torgovli SSSR
(Moscow : Izdatel'stvo Mezhdunarodnaia kniga, 1938), pp. 4-5.







Tle most a(-tive tecliiology transfer mectanisms -the ,o-called tech-
nilw l assistance agreeiiwiimts and <'oesioswere also cut back
sh irply after 1D"1. 1I, the end of the 1930"s, there were few such
agreements in effect. With the curtaihnent of these active technology
traii-fer mechianisiis. travel by technicians and businessmen between
ill( Soviet Union and the West declined rapidly. After the large in-
fIivion of Western technology (ldiino the First Five-Year Plan, So-
viet planners relied only on occasional, passive borrowing of Western
I elb ilol ogy.
Tie Stalinist growth strategy in the First Five-Year Plan must be
ilulged a success in one important respect : it changed radically the
structure of the Soviet economy. From a basically agricultural econ-
olly, the Soviet Union eimerlged as a major industrial power. The
O()Vtrall economic growth rate was modest in the First Five-Year Plan,
kit quite rapid (lring the Second. Richard Moorsteen and Raymond
POVell estimate that Soviet gross national product grew at a rate
ol' 6.2 percent per year (in 1937 prices) for the entire period 1928-
1 9,7.4 Most of the increased output came in the industrial sector.
Moreover, by the mid-1930's, high priority industries had achieved a
relatively high degree of technological sophistication. Partially, the
basis of acquired Western technology, the Soviets had built the neces-
sav base to increase industrial output at a rapid rate. Thus, their pri-
ninmrv goal-rapid industrialization-was largely achieved.
H owever, there were distinctive shorteoinin'gs in Soviet economic
per formance. First. performance in the Soviet economy was uneven.
The concentration of resources in heavy industry predictably resulted
in lhe neglect antl consequently poor performance in agriculture, light
imldudry, and infrastruct tral activities. More importantly for lon,-
run Soviet needs, lperfornialie with respect to technological progress
was poor. This is evidenced bv Soviet productivity performance. So-
viet industry seriously underfulfilled the First Five-Year Plan goals
for increases in labor'productivity. While Soviet planners had antici-
pated a doubling of productivity, the actual increase by the end of
19:12 was only 41 percent (according to Soviet estimates) In his
hiittorv of the period. Maurice I)obb notes that the planned produe-
tivitv improvenent was expected to come from new plant and equip-
,iint and more rationalized industrial organization. but that "there
lid evidently been excessive optilnisin as to the speed with which many
of the new plants could he broulrit into full and successful opera-
Sion .*.P Estimates bv Moorteen and Powell confirm that Soviet
factor productivity performance during this period was disappoint-
i,,-. After risiny v 6 percent from 1928 to 1930. productivity fell by
10 percent from 1930 to 1932, then rose bv 24 percent from 1932 to
19*17. (It fell a-ain in the late 1930's and during tHie War. and began
to increase after the War.) While acknowledging that their produe-
ti en v estimates are crude. they found that the growth rate of Soviet
1,roduitivity "1,oc not a ppear unambiguously hig'h" for the period
tlime studied (192S-1961).7
llifhard Moor-tepn and Raymond P. Powell. The Soviet Capital Stock, 1928-1962
(1 m, -wooi, Ill.. Riha ri D. Irwin. Inc.. 1913) p. 2R6.
,Maprb* Dhbh ,oh Srt rVco*oici I)t rlopoicot Sioce 1971 (London : Routledge and Ke-
ga Panl Ltd., 194R), p. 229.
Moorsteen and Powell. p. 283.







Their estimates for the entire period range from 0.1 percent to ".2
percent. This represents the same order of IrOd(It i viiy (-rowth11 rates
as the advanced industrial countries. (By comparison. lie U.S. pro-
ductivity advances during the same period averaged 1..) to 2 e'cc ,it.)
They conclude that Soviet )rodiict ivity performance w\as S1I r)risiinly
poor, when the potential proclivity gailis which might have been
derived from technology imports from t he West are con sidered. ( )n, y
a part of this poor performaice ca ll e accounted for 1 by thle setlc'ck':
during World War 11. Their estimates show no large iilreales in I(,
prewar period when technology inports were heavv. Mo>rsteen a ad
Powell attribute the relatively poor lperformance to inan:agrerial in-
efficiency, to the concentration of technology y imporIts and other re-
sources in a relatively small part of the economy, and to thme limited
capacity of the Sovlet economy "to obtain anl make use of new
techniques." 8
In an extensive stul(v of the contribution of Wetern teclinolo-v to
Soviet economic development. Antony Sutton concludes that "Ve-t eri
techmical assistance was the major causal factor in Soviet economic
growth for the period 1928-1945."(1 This view. renerallY ex~ire'i-ed
in less extreme terms, has gained considerable currency amon!L manv
observers in the West. However, Sutton's finding is+ coiitradicted Ihv
M ,orsteen's anl Powell's estimates of Soviet product ivity perform-
ance. An important conclusion of their study is that Soviet economic
growth during the 1928-1961 period waS extensive: i.e., tlat (Frowlt
can be attributed primarily to increments of capital andI lalior. rail her
than increases in factor productivity. They thus suggest that !e1-
nology, ineludino technology import:, from "the West. aCcountel f01- a
relatively small part of Soviet growth. "While *We'4ern technol',ffxv
is assigned an important role by Moorsteen and Powell and mo-t other
Western students of Soviet economic growth, its contribution was
undoubtedly limited by Soviet absorption problem, aid by Soviet
measures to restrict economic and technological ties to the Wedt.
Naturally the Moorsteen-Powell estimates pertain to the economy as
a whole. If one looks at individual lVestern-aszisted project. one iav
find huge gains from Western assistance. It is important to keep) in
mind. however, that the benefits of Western technoloA"v were coneell-
trated in certain sectors and limited primarily to particular periods
of time. Western technology contributed relatively v little to +nie ,' 'et
economic activities. and the cutback of teclnolo-ical ties to the West
in the 1930's reduced the potential gains from technologyT imports.

THE POST-SrALIxISr 'MODEL
The extensive pattern of economic development which characterizes
the Stalinist model far outlived its chief architect. Indeed Stalin ley-
acy in economic planning is felt acutely i v Soviet economists today.
For a number of years, a major theme in Soviet economic literature has
been tie need to shift from an extensive to an intensive growth str:vtegv.
The continuation of an extensive growth pattern in the post-Worl
War TI Soviet economy has been clearly demonstrated by Stanley
lf bid-, n. "24.
gAntony Sutton. Western Technoloq7t and Porict PEo'Ontie DcrelopmIent Vol. II : 1930-
19. 5 (Stanford: Hoover Institution Press, 1971), p. 33a9.







Cohn.10 Colin uses an approach developed in Edward Denison's studies
of economic growth in the Western industrial countries 11 to analyze
tle pattern of Soviet growth. ITe finds that the Soviet growth rate has
not been unusually high: it is only slightly higher than Denison's es-
tinates for Northwest European countries and barely half that of Ja-
pan. The most distinctive feature of Soviet growth performance, he
inls, is the comparatively low rate of growth of output per unit of
input, i.e., joint factor productivity. Japan, France, Germany and
Italy had substantially higher rates of increase, while the United
States and the United Kingdom had somewhat lower rates. At the same
tiune, the Soviet Union had rapid rates of increase for all three factor
inputs-land, labor, and capital-rates which were exceeded only by
niap an. Cohn further shows that in terms of proportionate contribu-
tion to economic growth, factor productivity accounted for a smaller
pe- centage in the Soviet Union than in any other country compared.
Not only is the growth rate of Soviet productivity comparatively
low, it is also declining. According to estimates by Rush V. Greenslade,
Soviet labor productivity, after growing rapidly in the 1950's. slowed
to a still respectable ).4 per cent average annual growth rate in the
I9(;0's and then to a disappointing 1.8 per cent during 1971-1975.12 Pro-
duitivity growth rates for the other factors of production have also
slowed noticeably. The reasons for declining factor productivity
,ITNwth in the Soviet economy are numerous. Poor agricultural per-
f0rinance, inefficient planning, and manag-ement, the end of the rapid
productivity increases associated with recovery from World War I,
II(, (eelinino" marg-inal returns to l'irge infusions of capital are aiong
hii a jor contributing factors.13
From the standpoint of increasing economic growth, the Soviet pre-
d lament is exacerbated by less favorable trends in resource availabil-
ifie-. Shorter work hours and a slowdown in the growth of the work
for-e are expected to create a substantial labor shortage in the Soviet
l-niou in the late 1980's and 1990's. According to Western estimates,
imrements in the able-bodied ages in the Soviet Union during the
19>40"s will be only about one-fifth of the numbers of the period 1971-
1975. Increments in the 1990's will also be lower than the current pe-
rnod.4 Since the traditional sources of new labor supplies-migration
Of laIbor from the agricultural sector and increased participation of
w\\omen in the labor force-are almost exhausted, this trend will be a
serious constraint on future cyrowth.
At the same time. Soviet planners are finding it difficult to maintain
thle high rates of capital investment which characterized the Stalinist
ele].Y Moreover, the number of claimants on Soviet capital invest-
iil-ts has grown. The needs of aoriculture, defense, and the infrastruc-
t ote are dixverting resources away from the growth-promoting heavy
,Stanley H. Cohn. "The Soviet Path to Economic Growth : A Comparative Analysis,"
i'',.i n'of Tneooc and ,Ith, 'Ma yoh. 1 9703, pp, 49-59.
See Edward Denison. The Sources oj Economic Growth in the ifted IRtate.x and the
A Iternatires Before Us. (New York: Committee for Economic Development, 1962.)
12 Rush V. GreensIade. "The Real Gross National Product of the U.S.q.R.. 1950-1975." in
V.S. Congress. Joint Economic Committee. Soevict Economy in a New Perspective (Wash-
intton. D.C., U.S. Government Printing Office. October 14, 1976), p. 279.
11 Cohn, pp. 56-57, and Abram Bergson. "Soviet Economic Perspectives: Toward a New
GroNwtb Model." Problems of Communismn, March-April, 1973, pp. 2-4.
Murray Feshbaeh and Stephen Rapaway, "Soviet Population and Manpower Trends
an, Policies," in JEC, pp. 113-154.
Bergson. passim.







industrial sector. In addition, the needs of Soviet consumers can no
longer be overlooked: quality consumer goods must be made available
to meet rising expectations and to provide incentives to increase labor
productivity.
TABLE 1.-U.S.S.R.: AVERAGE ANNUAL RATES OF GROWTH OF TOTAL GNP PRODUCTION, FACTOR INPUTS, AND
FACTOR PRODUCTIVITY, 1951-75
[Percent]
1951-55 1955-60 1961-65 1966-70 1971-75
Total GNP ---------------------------------------- 6,0 5 8 5.0 5.5 3.8
Inputs:
Labor (man-hours), capital and land -------------------- 4, 5 39 4. 1 3.9 4. 1
Man-hours ------------ .---------- .------------- 1.9 .6 1.6 2.0 1. 9
Capital ------------------------- ---------- ----- 9.0 9.8 8.7 7.5 7.9
Land ..-----------------. ------- - ---- 4,0 1.3 .6 -.3 .9
Factor productivity:
Labor (man-hours), capital, and land ------------------- -1 4 1.8 .9 1.5 -.2
M an-hours ..-.--------------------------......... 4.6 5.1 3.4 3,4 1.8
Capital -------------------------- -------------- -2.7 -3.6 -3.3 -1.9 -3.8
Land ------------------------------- ----------- 1.9 4.4 4.4 5.8 2.9
1 Inputs have been combined using a Cobb-Douglas (linearly homogeneous) production function with weights of 60.2,
36.7, and 3.1 percent for labor, capital, and land, respectively.
Source: Rush V. Greenslade, "The Real Gross National Product of the U.S.S.R., 1950-1975," in JEC, p. 279.
The net effect of factor input and productivity trends has been to
create a declining Soviet growth rate. After averaging between 5 and
0 per cent increases in GNP in the 19O's and 1960's the average growth
rate in 1971-1975 slipped to 3.,q per cent (see table 1). This trend is pa'r-
ticularly disturbing to Soviet leaders, who have long emphasized high
growth rates as the key success indicator of the Soviet economy and
who stress the need to surpass the capitalist economies.
These adverse economic trends have created the rationale for adop-
tion of an intensive growth strategy. Abram Bergson maintains that
the Stalinist model's influence on Soviet planning. which has been wan-
ing since Krushchev's rein, i has finally given way to a "new growth
model." "6 The major elements of the new model are a more balanced
growth pattern, with more resources being allocated to formerly low-
priority sectors of the economy, and reliance on increasing productivity
to bring ab out economic growth. Central to the intensive growth strat-
egy is an increasing emphasis on technological progress in the econ-
oniv. The attention to technological progress has become increasingly
prominent in Soviet economic plans. Thus, the Ninth Five-Year Plan
projected ambitious growth rates for industry and agriculture which
were to be accomplished largely by productivity gains and introduction
of new technology. In his foreword to the published version of the
Ninth-Year Plan, Nikolai K. llaibalkov, Chairman of the State Plan-
ning Committee, reaffirmed the 24th Party Congress's directive that the
"main task" of the plan was:
* to ensure a substantial rise in the material and cultural standard of lir-
ing on the basis of high rates of development of socialist production, a rise in
production efficiency, scientific and technical progress, and a faster growth of
labor productixity.17
10 Ibid.
N. K. Raihnkov. ed. Go.qrud'r.qtrennni piartletnii plan ritnr irt nor o Uo T- ioz"- i. ta
S'SR ita 1971-1975 godui (Moscow : Izdate1',rtvo toliticholekoi literature, 1!)72 ). p. 9.







Some of the specific goals of the plan, such as planned labor produc-
tivity growth, proved to be overly optimistic and were not met.
The Tenth Five-Year Plan again placed major emphasis on tech-
nological progress. The "Basic Guidelines of Development of the
ISSR National Economy in 1976-1980," issued at the Twenty-Fifth
Party Congress, make it clear that most of the anticipated growth is
expected to come from increases in productivity. Brezhnev, in his re-
port to the Congress, said, "The first order task remains the speeding
up of scientific and technical progress." He called the new Five-Year
Plan "the Five-Year Plan of effectiveness and quality." 18 According
to a Soviet planning official, increases in labor productivity are ex-
pected to account for 90 per cent of the increase in industrial output
and practically the entire increase in agricultural production and con-
struet ion and assembly operations." The Plan directives indicate that
most of the produictivity increase is to be achieved through technologi-
cal progress-both by increasing the tempo of domestic innovation and
bv importing foreign technology.
IProductivity increases have also been linked by Soviet economists to
economic reform. Since Stalin's death. Soviet leaders have experi-
mented with a variety of reforms designed to improve national eco-
nonic planning through improved collection of statistical data and
application of mathematical techniques. At the microeconomic level,
they promised more efficient enterprise management through various
decntralization schemes and more effective incentive structures. Judg-
in(, from both Soviet press commentary and Soviet economic perform-
ante. the results of the reforms have )een disappointing. Since 1973,
emphasis has been placed on creation of large industrial associations-
conglomerates of enterprises with similar or complementary output.
Associations are designed primarily to give managers some degree of
in(lependence in decisionniaking and to improve coordination of inputs
and outputs of related enterprises. In addition. Soviet leaders hope that
this reform will improve technological performance in Soviet industry.
Foreign trade has clearly been assigned a central role in the new
o'rowtli strategy. According to the Soviet economist I. Ivanov, the fol-
lowino goals in foreign trade have been discussed in relation to Soviet
long-term planning (i.e., for the period 1975-1990)
Ensuring a growth of foreign trade vurpassing that of national income:
Expanding export speeialization in the most advanced industries and indus-
trial capacities oriented to exports:
Evaluating new products and technology for the reduction in practice exclu-
sively on the basis of conforming to the world technological level and world
market requirement;
The USSR taking a major place as an exporter not only of raw materials but
also of machinery and technology, including "research-intensive" ones and ones
destined for Western markets;
Setting up a well-established foreign trade infrastructure abroad (transport,
service, financing, insurance facilities, commercial representation network, etc.)
Expanding the geography of foreign trade relations.
Evaluating imports as an alternative source while making decisions on domestic
investments;
I Pravda, Februnry 25, 1976.
N. I. logovskiy, "Proizvoditel'nost' nashego truda, "Pravda, June 9, 1976, p. 2.





53

Allocating to imports a larger share in improving the teehnologic:,l level of
Soviet agriculture, the service sector, and the economy as a whole; and
Incorporating international technological exchange in R&I) plans and pro-
grammes."
Efforts to implement many of the goals identified by Ivanov are
evident. duringg the Eighth and Ninth Five-Year Plans. foreign trade
was one of the most dynamic sectors of the Soviet economy. For ex-
ample, from 1971-1975. it grew about two and one-half im1es faster
than Soviet GNP. While the planned growth rate of foreign trade
during that period was 35 per cent, the actual growth rate was 1S6
per cent. The 10th Five-Year Plan goal of a further 3) 35 per cent
increase in foreign trade also seems likely to be exceeded.21 T'ra(eIV
with Western industrial countries is accoiting for an ilnreasillny
large share of total Soviet trade. From an average of less than 20 per
cent in the 1960's, trade with the West rose to 31 per cent of total trade
turnover in 1974-1975.2- While some of the increased trade with the
West can be accounted for bv larger grain imports, high-teciology
imports have also increased r-apidly and are I)laving an increasingly
important role in Soviet investment plans. Imports have accounted
for 10-12 per cent of total Soviet investment in machinery and equip-
menit in the 1970's.-23
Donald Green and Herbert Levine have attetupted to quantify the
contribution of Western technology to Soviet econoinic growth (ii ring
the 1968-1973 period. Their analysis, based on the Soviet Ecoiiolletric
Model constructed by the Stanford Research Institite and Wharton
Econometric Forecasting Associates. suggested that increases in WeSt-
ern technology transfers to the Soviet Union during this period had
made a major contribution to Soviet economic growth. Specifically,
thev concluded that without the new Soviet emphasis on importing
Western machinery, 15 per cent of the Soviet industrial growth rate
during 1968-1973 would have been foregone.24
Soviet imports of Western technology tend to l)e much broader b,qsed
than in the past. A wide spectrum of Soviet industries have beneited
from Western technology transfers. For the first timei, these iillilde
consumer industries, such as passenger cars, food-processing, table-
ware, and tourist facilities, as well as producer goods industries. In
addition, Soviet agricultiure has beeni the recipient of Western tech-
nology in the chemical fertilizers, farm machinery and animal hus-
bandry sectors.2
I. Ivanov. "Foreirn Trade Factors In the T'SSR'q Economic Growth and Some Per-
sl ectives for the U.S.-Soviet Economic Cooperation," paper presented at the Conferneoc
(oil US.-U.S.S.R. Problems and Opportunities. sponsored by Stfinford Research Institlite
and the Institute of World Economy and International Relations, Arlington, Virginia,
April 17-19, 1973).
21 U S. Central Intelligence Agency, Soviet Economic Plans for 1976-80: A Firt Look
(ER 76-10471). August 197i. p. 29.
2U.S. Central Inteli-ence Agency. The Soviet Economy: Perform ance in 1975 and
Pro'nects for 1979 (ER 76-10296). May 1976. p. 17.
-:' CIA. Soviet Economic Iton,,s, p. 26. Similar figures are cited by Soviet econonvists. See,
for example. (). Bogomolov. Ire.xtiia. February 26. 1974.
21 Donild W. Gre,,n ond Herbert S. Levine. "Im1)lif'ations if Technology Transfers for
the USIR. tn Fast-Ve.ft Technolo',eel Co-operatior: (,Main Findin,-s of Colloqimim h-l1
17th-19th March 1976 in Brussels NATO, Directorate of Economic Affairs, Brussels, 1976,
p. -, (
T',9 Co nro..s MTTzoi. Covnmitftf on Fri-n A'jrs Su b,'mmitt,, on Nqtlo1nl S ll-
rity Policy and Scientific Developments. T-.S.-Soviet Commercial Relations: The Interplaui
of Ircoomi c, i c, l'rch oor!! 1"ra sfcr. ani d I)iploinact. I) .Toln If. Hl:rdlt and (; ,- e Tlli-
day (WVashington. I).'. ; Governuent Printing Office. June 10, 197:1), pp. 15-22 and 45-47.







The changing role of foreign trade in the new growth model goec
beyond a mere increase in volume and diversification of imports. Soviet
economists are paying increasing attention to the advant'lges of pro-
gressive integration of the Soviet economy into the world economy.
There has been particular interest in international specialization or
international division of labor in industrial production. One of the
clearest expositions of what Soviet economists mean by these terms is
provided by the Soviet economist N. P. Shmelev.26 He bemoans
the predominiiance of "nation al industrial contplexes" in the industrial-
ized world, which include "if not all, at least a significant part of all the
branches of modern industry." In obvious reference to the development
strategies of the Soviet Union and other socialist countries, Shmelev
notes the. negative consequences of building parallel. duplicative and
relatively small-scale in dustribs in separate comtries. X1hile maintain-
ing that this pattern of development was the logical result of political
tensions between socialist and capitalist countries, he claims that the
new international environment dictates a new strategy of international
specialization to include industrial enterprises in both economic sys-
tems. This, lie explains, means specializing investments in such a way
as to allow long production runs and economies of scale. It entails
cooperative industrial relations between all advanced industrial coun-
tries, taking advantage of a common market for supplies of raw
materials, manufactured goods and the results of research and
development.
To put Soviet discussions of international specialization into per-
spective, it should be noted that this process of international speciali-
zation has not proceeded very far in Soviet economic policy. Even
within the confines of the Council of Mutual Economic Assistance
(CEMA), where polieymakers have long talked of coordinating their
annual and long-term plans, there has been relatively little specializa-
tion. However, traces of such a process are already evident. Several
kinds of industrial cooperation agreements, such as those involving
long-term Soviet commitments to deliver raw materials in exchange for
Alestern technology, fit into this framework. Another important mani-
festation of a new approach to international specialization is the
development of special export capacity in some Soviet manufacturing
industries.
Soviet foreign trade planners no longer rely on commodities that
happen to be in surplus to meet their export needs. There has been a
concerted drive to produce high-quality manufactured goods which
can compete successfully on international markets.27 This new
approach has led to assignment of a high priority for exportable pro-
ducts, which sometimes results in higher quality for exports than for
domestic goods.28 Large projects assisted by imports of Western tech-
nology often earmark a part of their output for foreign markets in
order to repay hard currency credits. Exports of manufactured goods
2 N. P. Shmelev. ed.. Ekonomicheskie sviazi Vostok-Zapad: problem i vozmozhnosti
(Moscow: Izdatel'stvo "Mysr," 1976), pp. 16-18.
-T Paul Ericson, "Soviet Efforts to Increase Exports of Manufactured Products to the
West," in JEC, pp. 709-726.
2,4 "Planirovanie I upravlenie nauchno-tek-hnicheskim progressom v X ptatiletke," Voprosy
ekooniki, No. 8, 1975, p. 118.





55

are seen as a means of promoting Soviet economic growth 1" allowil)g
Soviet industry to reap the benefits of comnparative advanlta,.e and
international pecialization. Tle elnplhasis On exports of mlann f: l urt(II
goods is largely a result of the increasingly high cost of exploit.i'1-
domestic natural resources. This rationale is particularly coitl ellint-
because inajor new sources of traditional Soviet raw mat eri ex ports -
wood products, oil and other minerals-are located in reilote areas of
Siberia.
The Soviet drive to expand exports of manufact lired goods to thy
West is necessitated in part by cont intal Soy et ha id ciu-relc v balance
of tradedeficits. In the 10-vear period 1911 75. the Soviet Union011
only one surplus in its hard currency trade (see table 2).
TABLE 2.-U.S.S.R.: HARD CURRENCY TRADE DEFICIT
[In millions of U.S. dollars]
Exports Imports Ba3nce
1966 ---------------------------------------------------- ------- 1,517 1,755 -238
1967 ----------------------------------------------------------- 1 711 1,616 +95
1968 ----------------------------------------------------------- 1,909 2,018 -109
1969 ------------------------------------------------------------ 2, 125 2,436 -311
1970 ----------------------------------------------------------- 2, 197 2, 711 -514
1971 ---------------------------.------------------------------ 2,652 2,955 -303
1972 ------------------------------------------------------------ 2,815 4, 171 -1,356
1973 ----------------------.---------------------------------- 4,818 6,566 -1,748
1974 ------------------------------------------------- ---------- 7,630 8, 541 -912
1975 ------------------------------------------------------ ----- 7,800 14,081 -6,281
Source: John Farrell and Paul Ericson, "Soviet Trade and Payments with the West," in JEC, p. 728.
At the end of 1976, the Soviet Union had accumulated an estimated
hard-currency debt of $14 billion, and the debt is expected to continue
growing in the immediate future. This aspect of Soviet trade with the
West bears strong resemblance to Soviet foreign trade problems of the
early 1930's. However, the current response-allowing indebtedness to
grow while developing export industries-is in sharp contrast to Soviet
policy in the earlier period.
The export of manufactured goods is also seen as a means of pro-
moting domestic technological progress. On the one hand, increased
foreign exchange earnings allow greater imports of Western tech-
nology. One of the means developed in recent years to provide incen-
tives for Soviet enterprises to export is to return a part of the hard cur-
rency earnings to the enterprise. These earnings are allotted to the
acquisition of new foreign licenses, technical specifications and
machinery. The primary purpose of the acquired technology is the
production of additional exports and improving their quality.9 The
Soviets are also becoming aware of the importance of competition on
international markets as an incentive to produce higher quality, more
sophisticated goods. One Soviet economist has described the inter-
national market place as a "filter" which allows only high-quality
goods to pass. This infiltration process. he says, has a beneficial influ-
ence on the structure and quality of domestic production. It encour-
ages the production of goods which meets the highest world stand-
, Iu. Samokbln, "Stlmullrovanle eksportnogo proizvodstva," Ekonomicheskaia gazeta,
No. 12, Mardh 1975, o. 20.







ards.-'0 The development of Soviet export industries is in its forma-
t ive stages. There are still formidable problems in in dustrial organiza-
tion, quality control, marketing skills, servicing and other matters
tibat must be solved in order to succeed in this endeavor.31
The new export orientation of Soviet foreign trade suggests an
effort to imitate the Japanese example of using foreign technology to
create export industries. Indeed, the Soviet press reflects a keen Soviet
interest in this aspect of Japanese economic development.32 There is a
particular Soviet. interest. in the contribution of foreign technology to
Japan's high growth rate and Japan's success in capturing export
markets in both high technology and mature manufacturing industries.
Some Soviet observers betray a scarcely hidden admiration of the
,Japanese govern ient's role in screening technology imports, Japanese
industry's ability to put new ideas rapidly into the production process
and the quality control and marketing techniques of Japanese manag-
ers. Perhaps underlying Soviet interest in the Japanese model is the
recognition that ,Japan has borrowed technology without allowing
s5lbs lantial control by foreign firms in the domestic economy.
The major departure in Soviet economic growth strategy portends a
coutinlled expansion of deniand for Western technology transfers to
the Soviet 17nion. The underlying economic conditions which inspired
the new strategy will not change in the foreseeable future. Because of
its inability to gnerate major increases in factor inputs, the Soviet
eonoi1y will have to rely on technological change as a source of con-
tnied growth. Indeed, the logic of the new growth model will become
iimore compelling in the 1980's. The need for technological progress, in
tu'rn, provides an incentive for continued technological interchange
with the West. Thus. Soviet leaders will be unable to change courses,
a- they did in the 1930's, without considerable economic costs.

TECIINOLOGY ABSORPTION AND SOVIET RESOURCE ALLOCATION
What are the implications of increased Western technology transfers
to t],e Soviet Union for Soviet decisions on resource allocations? In
t le Iiist, place, the Green -Levine conclusions front the Soviet Econo-
metic Model. as well as icroeconoiuic studies, suggests that the total
resources available to Soviet economic decisionmakers will be greater:
tIe Soviet economy will reap the normal benefits of comparative ad-
vantage and technology borrow iing which accrue to all countries. In
t)articllar. Soviet technological resources-technical manpower, high-
q i nl itv mal erials, research and development funds and other inputs-
are released for other economic )urposes. By inporting technology,
Soviet economic planners are )ble to concentriate scares domestic tech-
I olial resources on alternative economic needs.
At the same tiine. the increasing" prominence of the foreign trade
secotor in thw Soviet economy generates pressures for reordering tradi-
T' I. S. Zavialoc. Naiie1ino-tekhnicheikaia reroliut.iia i iehdunarodnaia spetsializatsiia
j tn' r od.stra pri kapitalizme (Moscow: Izdaltel'stvo "Mysl'," 1974), pp. 13-14.
"I Ericn. pp. 724-726.
S,. for example. B. Konrzin, "Iaponskli put' nauchno-toklinicheskogo razvltfia,"
i oa c kot noika i inczhehina odnoe otn di iia, .Jine. 1973, pp. 51-62; and N. N.
Seliahov, 8 chego nachinlaetsia rodina (Moscow: Izdatel'stvo politicheskoi literatury,
1, 7.- n 472-505
.2 Smeliakov, passim.








tional resource allocation patterns. The alsorptioni of Western tech-
nology creates a demand for domestic resources which might otherwise
be allocated to other sectors of the economy. Imports of technology
must be complemented by various kinds of domestic inputs. They must
also be paid for with exports. Thus, greater priority must be accorded
to export expansion.
The resource-releasing aspect of transferring technology to the
Soviet Union has received considerable attention in the West. For
example, opponents of trade with the Soviet Union frequently main-
tain that any trade benefits the Soviet economy and ultimately Soviet
military power because resources which would have been required for
civilian projects are released for military expansion. The resource-
demanding aspect of technololv transfer has received little attention.
Yet there is evidence that the resource-demanding effect is substantial.
In some cases, the net result may be to draw resource away from tra-
ditionally high priority sectors of the economy (such as those in the
military sector).
Several factors support the general conclusion that Soviet tech-
nology, imports have a large resource-demanding effect on the domestic
economy. First, the technology transfer process itself consumes domes-
tic, as well as foreign resources. The adaptation and absorption of
technology which has been developed for another country requires
considerable inputs from the Soviet economy. For, example, Soviet
engineers are needed to adapt foreign production techniques and
product designs to local conditions. The "Zhiguli" passenger car,
produced with the assistance of FIAT and modeled after the FIAT-
124, required modifications of 65 percent of its parts in order to per-
form adequately under Soviet conditions. Additional resources are
consumed while manag-ers, technicians, and workers are learning to
operate and maintain new plants or machinery. During such learning
periods, labor and material resources are often wasted, and output is
reduced.
Research by David J. Teece suggests that the costs of transferring
technology can be high, particularly for countries which do not have
well-developed infrastructures. 34 He also finds that a country tends to
spend different kinds of technological resources on borrowing tech-
niology than it would on independent R & 1D. Specifically, domestic
R & ID involves intensive utilization of research scientists and engi-
neers (who are relatively plentiful in the Soviet Union). Successful
technology transfer depends only incidentally on research personnel,
but requires extensive employment of competent mai factoring engi-
neers and project managers. Teece's findings, if they are applicable to
the Soviet Union. suggests that the alternative costs of borrowing
technology are quite high for the Soviet Union, since it seems to have
a shortage of highly qualified manufacturing engineers and project
managers.
A second factor contributing to a large resource demanding func-
tion is the high quality requirements for domestic inputs for projects
using Western technology. Frequently. the highest quality domestic
6 David J. Teece. The nifltinational Corporation and the Resource Cost of In ternatiooal
Technology Transfer (Cambridge, MNass. : Ballinger Publishing Conmpany, 1976), 1). 100.


86-144---79--5








labor and material resources are needed to insure that imports of ad-
vanced technology are effectively exploited. An example is the diver-
sion of experienced construction crews from Moscow projects to work
on construction of the Western -assisted Volga Automobile Plant
(VAZ) and the Kana River Truck Plant (KamAZ). Likewise, some
of the best Soviet designers and engineers were employed in planni ig
and building the two projects.
The requirement for subsantial allocations of domestic resources
to coil)plenment technology transfers is illustrated by Soviet invest-
ments at VAZ and KamAZ. At VAZ, hard currency expenditures.
estimated at $550 million, were supplemented by approximately Si
billion in domestic expenditures (i.e., a ratio of foreign to domestic
investment of roughly 1: 2).3, It has been estimated that KamAZ
required over $1 billion in har( currency expenditures and $2-3 billion
in domestic expenditures (i.e., a ratio of 1: 2 or 1: 3).36
These sums represent merely the intial investments for the projects.
Substantial investments are required to expand and modernize coi-
plementary industries and to provide an improved infrastructure for
the rapidly growing Soviet automobile park. Such secondary and ter-
tiary investments are a third factor which contributes to the high
resource-demanding effect of Western technology transfers to the
Soviet Union. For example. tihe expansion and modernization of Soviet
automotive output which has accompanied the construction of VAZ
and KamAZ has generated a demand for metals, plastics and other
materials with specifications which were not formerly produced b.y
Soviet industry. Production of new automotive components, tiies.
high-octane gasoline and diesel fuel must be increased rapidly. Per-
haps the largest expenditures are required for expansion of the small
Soviet network of first-class highways, service facilities and other
in fra struct u re.
Finally, the large Soviet expenditures on Western technology must
be paid for with hard currency earnings. In order to sell Soviet prod-
ucts abroad, resource allocations must be shifted to export industries.
Soviet, exporters, particularly those attempting to market manufac-
tiured products in Western countries, must be given high priority for
sop )histicated tecimological inputs.
The long-terni effect of Western technology transfer to the Soviet
Union will be to expand and modernize Soviet industrial output. Such
benefits are the primary motivation for the Soviet Union to purchase
technology from the West. At the same time, the net effect of such
transfers mav be to direct Soviet resource allocations toward those
sectors of economy that are the primary recipients of Western tech-
nolooy. To soine extent, Western-assisted projects may compete with
traditional high-priority sectors for scarce technological inputs.
nFor additional! detail, on torhnology transfer to the Soviet automotive industry, see
G-or e D. Iollidav, T.l echnology Transfer to the Sorict Union, publication forth-
coming. Westview Pres. 1979.
:I' !no2i'n 1'. lx :nrd- "Allftowotive lrond in the USSR" il U.S. Congress Joint Eco-
noie ('ommitteo. Soriet !'conowic Prospei ts for the Rerventies,. Washington. U.S. Govern-
?o'nt Printing Offivo, V)7., p. 2,)(1 : iid Cha.e World Information Corporation, KamAZ,
the Billion Dollar Beginning, 1974, p. G6.












Chapter 5. TECHNOLOGY TRANSFER, AND CHANGE IN
TIE SOVIET ECONOMIC SYSTEM
By Joiix P. HARur AND GEORGE 1). IOLLIDAY
AN OVEIVIEV
IJn the 1970's, importation of advanced technology frolmi Western
industrial nations is perceiNc d by the Soviet leaders as an ilnportailt
contributing factor to attaiinient of their high-priority eonliCle
goals. In a wide variet v of c(.onlonile sectors, such as pr(ductiont of
automobiles and clheniiiile, energyy development, metal processing,
shipping, and aniiiial Iiisbandry. Western machinery and industrial
processes have nade a significant impact on Soviet product ion. Official
Soviet pronouncements indicate a continuing and ex)allding conmiit-
ment to use of W eren tectr,)logy in these and other sectors.
The traditional Sovie t arrmgeients for importing Western te(,h-
nology are being challenged, and in many cases there is evidence of
evolution toward a "modified systeiis al)proach" to technology, trans-
fer. The new approach is characterized by (1) a long-teri or contin-
uous connection; (2) complex or project-oriented in(lustrial coopera-
tion; (3) systems-related contradiction, production. manaoeinent. and
distribution; (4) Western involvement in training and in the decision-
making process both in the Soviet Union and abroad. The ino&!;!,
systems approach contrasts with the traditional approach eJl 4
bv the Soviets in the Stalinist period and by the tsarist reginIeI I-
IRevolutionary Russia. The traditional approach relied on short-teriii
arrangements designed to rapidly achieve specific domestic production
goals with minimal personal contacts with Western managers, engin-
eers, and technicians. The old policy, which aimed at Soviet economic
and technological independence from the West, appears to be giving
way to a new policy that accepts a greater degree of technological
interdependence.
To maximize the benefits of Western technology imports, the Soviet
leadership may have to accept a degree of change in the Soviet e(co-
nomic control system. In order to gain Western levels of efficiency,
they may have to go beyond simple imports of machinery and equi)-
ment and accept Western management methods and foreign involve-
ment in the operation of the Soviet economy. Such a change would tend
to subvert the traditional Soviet control and information syst(,m.
Moreover, the efficient absorption of technology may require a con-
John P. Hardt and George D. Holliday, "Technology Transfer and Change in the
Soviet Economic System," Technology and Communist Culture: The Socio-Cultural Impact
of Technology Inder Socialiim. Ed. Fredric J. Fleron, Jr. 1977 Praeger Puhlishers. A divi-
sion of Holt, Rinehart and Winston, CBS, Inc., pp. 183-223. Reprinted by permission of Holt
Rinehart and Winston/CBS. Inc.
Special acknowledgments to a number of readers are in order: Joseph Berliner: Frederic
J. Fleron. Jr. ; Robert Fraser, Philip Hanson, Paul Marer, Carl McMillan, and Henry Nau.
The final responsibility of the contents is that of the authors.
(59)







ceiitration of high-quality Soviet goods, personnel, and other research
and development resources in Western-assisted projects. In addition,
substantial Soviet investment in complementary industries and in-
frastructure may be necessary to bring about the desired results.
This chapter describes the changing Soviet need for Western tech-
nolog, and provides a more detailed explanation of what we have
called the modified systems approach to technology transfer. A case
study of Western technology transfer to the Soviet automotive indus-
try in two periods of Soviet economic development-the First Five-
Year Plan (1928-32) and the current period (mid-1960s to present)-
highlights some of the changes that have occurred in the Soviet orien-
tation to Western technology. The case study also provides a basis for
discussing possible changes in Soviet domestic economic policies and
institutions that might follow from prolonged interaction between the
Soviet and Western industrial economies. The central point of this
study is not that Soviet absorption of Western technology inevitably
leads to changes in the Soviet economic system, but rather it suggests
the rationale for such change and describes a new Soviet flexibility,
evidenced in part by evolutionary changes in Soviet institutions and
in part by active Soviet consideration and discussion of alternatives to
traditional methods.
TIE CHANGING SOVIT NEED FOR WESTERN TECHNOLOGY
Tie Traditional and Modified Systems Approach to Technology
Transfer
Sometime between the December 1969 Party Plenum and the
Twenty-Fourth Party Congress in March-April 1974, when the Ninth
Five-Year Plan was unveiled, the Soviet leadership apparently had
made the decision that the lagging economic performance required a
more explicit, modification or abandonment of the Stalinist principle
of technological and economic independence and a turn toward a policy
of selective interdependence with the industrially developed nations
of the West, including the United States.' In retrospect it appears that
the decision was based more on a Brezhnev-led consensus than on a
formal and explicit action by the General Secretary, although public
statements indicated a, willingness to shift from independence to inter-
dependence.2 This coincided with the broader Soviet discussions on a
Suic ti ific ,l technological revolution.3 While the general need to draw
on Westelin expertise, products, and processes had been recognized by
John P. nardt and George D. Hlolliday, T'.S.-Soviet Commercial Relations: The Interplay
of Econowin., Technolofly Transfer, and Diplomacy, U.S., Congress House, Committe on
Foreign Affairq. Sbconimnitlee on National Security Policy and Scientific Developments, 93d
Cong.. ist (Washinaton, D.C.: Government Printing Office, 1973), U.S., Congress,
Joint Economic Committe. Soviet Economic Prospects for the Seventies, 93d Cong., ist sess.
Washington. D.C. : Government Printing Office, 1973, hereafter Soviet Economic Prospects
or the Serentics). John P. Hardt, "Soviet Commercial Relations and Political Change," In
The Interac tion of Economics. and Foreiqn Policy, ed. Robert A. Bauer (Charlottesville:
University Ptess of Virginia. 1975, hereafter "Soviet Commercial Relations and Political
Change").
2-Brezhnov speech on West German Television, Pravda, May 22, 1973: Philip Hanson.
"Import of Technology" in The USSR Since the Fall of Khrushohev, ed A. H. Brown and
M. C. Kasr (TLondon : 'Mcmillan. 1972) : N. K. Baibakov, Gossdarstvennys pyatiletnyi
plan razritiia narodnoqo kho:iai.qtra SSSR na 1971-1975 qody rState five-year plan for
development of the USSR national economy for the period 1971-19751 (Moscow: Polltizdat,
1972).
8 See Julian M. Cooper In Chapter 2 of this book.





61

the Soviet leadership during Nikita Khrushchev's reginiie, teclimloy
imports had been affected basically within the traditional Stalinist
economic framework. It was left to Khruslichev's successors, Leonid
Brezhnev and Alexei Kosygin, to shift the Soviet economy toward a
new degree of technological interdependence with the West.-
Western economists such as Abrain Bergson and Stanley Colin have
noted the long-term problems of Soviet growth retardation and the
need to improve factor productivity, especially to lower capital-omt put
ratios.5 A selective inflow of Western capital goods could add a crit4ical
margin of effectiveness to Soviet investment. It appears that a similar
assessment by the Soviet leadership )rovided a rationale for a New
approach to economic and technological interaction with the West.
The use of Western technology is especially attractive to Soviet eco-
nomic planners when long-term credits defer repayment of foreign
investment to future time periods and when payback agreements tie
repayments to the incremental productive capacity provided by West-
ern investments in specific Soviet projects.
Some such general calculus probably has been the basis for a reas-
sessment by Soviet leaders of their strategy of Western technology
imports. This general logic was probably reinforced by the specific
economic requirements of Soviet economic planners. For example,
among the most important goals of recent Soviet economic plans have
been the following:
1. Modern regional oil and gas complexes in West Siberia. in-
eluding not only increased energy supply but a significant ex-
pansion of the related chemical and petrochemical industries. The
stepped-up development of these regional energy complexes is
intended to ensure adequate supplies of efficient energy for (onion-
tic, CMEA, and hard-currency export needs. Foreign capital and
technology were essential to meeting the time and quality stand-
ards of this objective.6
2. A modern metallurgical industry based on new processes of
steel output, such as pelletized steel and higher-quality output and
utilization of other metals. The Krasnoyarsk-East Siberian alu-
minum-hydro development, the Yadokan copper development,
and the Kursk metallurgical development are major projects in
this modernization effort. The Baikal-Amur railroad development
(BAM). a featured development of the Tenth Five-Year Plan
(1976-80), will correlate with the East Siberian-Far Eastern
metal modernization effort.7 Western capital and technology seem
to be critical to meeting the time and quality criteria of the
planned expansion.
3. Computer-assisted systems for processing national economic
data and operation of a number of critical sectors in transporta-
tion and industry such as Intourist and Aeroflot bookings, port
operations, and air traffic control. Western computer and periph-
4 nardt. soviett Commercial Relationq snd Politicnl Cabnge," op. cit.
5 Abram Bergson. "Soviet Po't- Wnr Econr rie Developme!)t.' Wiolks-W Letur, I971
(Stockholm: Almovist and Wiksell international. 1974) : Stanley Colhn. "Econonmic .)rdrn
of Defense Expenditures," In Soriet Economic Prospects for the ercnties. op. eit.. pp.
147-62. Sep also U.S.. Congress. Joint Economic Committee. Soviet Economy in New Per, Z~ec-
tire. (Washington. D.C. : Government Printing Office. 1976).
6 John P. Hardt. "West Siberia: The Quest for Energy," Problems of Communism, April-
May 1973. ap. 25-3fl: Planoroe khopioi.,'o.no 10 (1974). p. 52 ff.
7 "Directives for the Tenth Five-Year Plan." Pravda, December 14, 1975.







n'al equipment was purported to be necessary to provide the
basis for transition to a new system of national economic report-
ing and enterprise planning and management.
4. Animal husbandry complexes, based on the latest Western
agribusiness techniques to provide a significant increase in meat
and poultry output.
5. Construction and operation of modern truck and passenger
ear complexes to provide the basis for Soviet entrance into the
:utomobile age in cargo and passenger transport. The main-
moth Kana River truck project and the FIAT-Soviet passenger
car plant, started in the Ninth and Eighth Five-Year Plans,
re'-pc(tively, are the central projects of this step-up in Soviet auto-
niotive capability. Each project has been based heavily on foreign
technology and capital inflow. Attainment of this objective is the
-,d)jeet of a more detailed assessment in the second part of this
lklper, a case study from which we may draw inferences of po-
rential validity for attaining the other objectives.
In attaining or making a najor beginning on the process of accom-
plishing such economic tasks, there seems to be a changing Soviet view
on the appropriate form of technology transfer. In spite of the path-
breaking FIAT example in the Eighth Five-Year Plan, one might say
that the Soviet planners began the Ninth Five-Year Plan in 1971 with
a traditional Soviet concel)t of a narrow. restricted form of technology
tran-fer and ended the plan period in 19715 with a much more flexible,
sy4emis-oriented view." These views may be referred to as the tradi-
tional Soviet model of technology transfer and the modified systems
forim of technological interliange, respectively. The possible forms of
technology transfer range from a narrow, short-term, discontinuous,
politically-insulated process to a broader, lonrer-terin, continuous, less
instiu tionallv constrained process. In earlier cycles there have been
temporary, short-term, controlled openings to the West. The special
relationships with the United States and other Western nations were
considered temporary retreats from the basic policy of technological
and economic independence. The current policy, in contrast, may be a
cautious, case-by-case movement along a scale from economic inde-
pendence toward economic and technological interdependence. This is a
view that appears to be shared by most 17.S. corporations involved in
the Soviet trade; that is, each agreement is expected to be followed by
another, or several others, of at least equal value. Moreover, the con-
ventional 1.S. corporate wisdom seems to be that increasing Soviet
flexibility may lead to more conventional direct investments in the
Sov etUnion.
The two variants of technology transfer. the traditional and modified
svsteims approaches. represent points in the spectrum of minimum to
max i mum Western involvement in Soviet industrial cooperation. Those
Soviet leaders who argue for political and institutional stability tend
to favor the former; while those who are most concerned about im-
proved economic performance tend to favor the latter. Some of the
8 The FIAT-assisted Volga Automobile Plant in To'iatti, built during the eighth five-year
plan. seems in some ways to be the most advanced example of the new approach. In retro-
spect. as noted below, it appears to be the forerunner of an approach to technology transfer
that became more widely accepted during the ninth five-year plan.







characteristics of the traditional approach were exceeded in historical
cases, such as the Ford-assisted Gorkiv Automobile Plant built ill the
early 1930s, blut during' the interim period, from the early 1,930s
through the 1960s, Soviet policy was to isolate the Soviet economy from
Western influence. Technology imports from the West tended to be
relatively small in scale and accomplished tiroiigh passive neclianisns,
such as simple imports of nacdinerv 'rod equipment. Some of the
characteristics of the modified systems approach were not adopted in
the major projects of the Ninth Five-Year Plan. such as the Kaua
River truck plant, but have been the subject of recent discussions in the
Soviet press and of negotiations with Western firms.9
The traditional Soviet model of technology transfer has characteris-
tically minimized all aspects of Western involvement in the Soviet
economy in order to maintain Soviet independence of foreign capital,
technology, and influence. In tie nioditied systems approach. the Soviet
concern for independence is tempered by a recognition of the economic
benefits of more active technology transfer mechanisms. The differences
in the approaches can be highlighted by reference to three stages in
building and operating and industrial project: design and construe-
tion; operation and production; and distribution, marketing, and
pricing.
Design and construction.-The traditional model minimizes foreign
involvement in the design of production facilities and products. Soviet
planners and engineers control the choice of location and the actual
construction of the project and specify which machinery and equip-
ment are needed. The modified systems approach encourages the use of
Western consultants for a variety of planning, design, and construe-
tion activities; for the use of Western designs or the adaptation of
Western designs to meet Soviet conditions: for the planning of regional
complexes or specific production facilities; and for the supervision of
construction, installation, and start-up.
Operation and production.-The traditional model minimizes for-
ew-n involvement in the management of Soviet production facilities.
The history of tsarist and early Soviet foreign concessions, which
resulted in dependence on foreign managerial expertise, has made this
a paramount concern for Soviet leaders. IHowever, the modified systems
approach allows Vestern involvement in mnaoaement to the extent
that it is deemed necessary for the rapid reproduction of Western levels
of technology and performance. Western involvement includes train-
ing by Western specialists in Western facilities and some degree of
Western decision-making power in Soviet-based projects.
Distribution. marketing, and pricing.--The traditional model mini-
mizes foreign involvement in the distribution and pricing of the prod-
nets of Western-assisted projects. Soviet central planning practices
made it necessary to retain this power in Soviet hands: however, the
modified systems a approach does permit Western man agerial advisors
to participate in decisions that influence the ability of a new facility
to meet foreign and domestic demand, such as matters concerning
V. Sushkov, "0 torgovo-ekonomicheskom sotrudntchestve q kapitalistieheekom stranaml
v stroited'stve v SSSR krupnykh promyshlennykh ob"ektov," Vneshniaia torgovlia, no. 2
(1976) pp. 8-11 ; N. P. hnmelyov. "Scope for Industrial. Scientific and Toehnical ('oopera-
tion between East and West," paper delivered at the international Economic Association
Round Table in Dresden, German Democratic Republic, 1976.







advertising, servicing, and maintenance. The Soviet need to export
competitive products to Western markets creates special requirements
for continuing Western involvement.
The transition from the Soviet traditional form of technology trans-
fer to the modified systems approach has not yet been accomplished
as a standard or norm of technology transfer or industrial cooperation.
Indeed, the norm is still closer to the traditional form. However, all of
the aspects of the modified systems approach appear to have been
subject to active Soviet study and discussion, and many have been
introduced into the negotiation process among Soviet and Western
industrial interests.
The Soviet leaders have broadened their view of Western tech-
nologies that may have applications in the Soviet economy. Technology
embodied in management techniques, computer applications, and eco-
nomic analysis systems has been added to the range of technologies
transferred. Examples of these new forms of technology borrowing
include (1) greater use of Western consultant firms for management
assistance and computer applications; (2) increased participation in
Western research activities, joint management projects, and joint East-
West trade research efforts; (3) intergovernmental bilateral exchanges
with Western nations, focusing not only on production techniques but
on complex applications of management techniques; and (4) increased
participation in multilateral forums, such as the Internationa lEco-
nomic Association and UN research activities.
The Time Dimension in the Transfer of Western Technology to the
Soviet Economy
A central question in assessing the significance of the transfer of
Western technology to the Soviet economy is the time dimension. Has
the Soviet economy become linked to the industrially advanced West-
ern economies on a long-term, expanding trend, or is the Western
technology bridge a short-term catch-up expedient that will peak in
the not-distant future and give way to earlier patterns of independ-
ence ?
In the past, certain Soviet and Russian leaders-Stalin, Peter the
Great, Catherine-have temporarily opened their Western windows to
bring in the latest industrial techniques and shortly thereafter closed
them. The political desire for independence from Western influence or
domination was an apparent rationale for this policy. Modifications
of the traditional insular policy led to cycles of Western exposure.
Moreover, the economic costs of the short-term policy of technological
catch-up seemed to have been modest or at least manageable.
Historical patterns, however, may no longer be a valid guide. The
Soviet leaders now seem confident in their Great Power status. They
may perceive an ability to limit the impact of critical Western influ-
ences to their "in-system modernizers." They have publicly stated that
the old Stalinist policy of independence and isolation has ended. Inter-
national division of labor, a form of comparative advantage, has been
espoused, ideological and political control may no longer override eco-
nomic advantages. The economic advantage of progressively joining
the world economy may become greater over time.





65

The general trend toward a modified systems approach to technology
transfer seems dictated by a desire to copy Western measures of Cli-
ciently in output, for example, to produce a car or truck model that
may be efficient and competitive in the 'Western market, including
model changes under mass production conditions, or to duplicate U.S.
levels of feed-grain conversion, shorter gestation periods for marketing
animals, and other agribusiness measures. Technology absorption, dif-
fusion, and domestic innovation-the whole 'Western cycle of tech-
nological interchange-compel the Soviet Union toward the systems
approach, including Western involvement in management. In tech-
nologically dynamic areas this systems approach, involving a broad
pattern of technological interchange, tends to be iterative and more
efficient through successive iterations. This tends to accelerate Western
involvement over time.
The Soviet leadership's concern with broad economic objectives such
as an efficient automotive transport system, modern hydrocarbon
energy complexes, and an efficient meat supply sector, creates incre-
mental needs for expansion of infrastructure and other investment.
The development of modern truck plants, such as the Kama 1River
truck plant, may generate requirements for better highways, repair
facilities, warehouses, and another truck plant. Likewise, the next large
truck plant based on improving Western technology may be more,
rather than less, tied to the Western partners. As the Soviet economy
modernizes and closes the technology gap (even to the point of export-
ing under competitive conditions), the Soviet Union may import more
rather than less. Thus the traditional progressive process of interna-
tional trade among industrialized economies, based on comparative
advantage, may affect the Soviet economy.10
The political calculus may involve a weighing of the pressures for
improvement in economic performance promised by Western tech-
nology imports, against the institutional and political changes that
could result from accommodations to Western standards of efficient
organization and management. The latter risks may be considered more
containable than they would have been in earlier periods. A strong,
mature Soviet superpower may be able to sort out the advantages of
Western technology without exposing itself to undue Western eco-
nomic leverage. It therefore may not consider Western commercial
contacts subversive to its ideological system.
By modernizing basic industries such as energy, metals. and machine
building; entering the automotive age; and developing an agribusiness
base of modern agriculture, the Soviet leaders appear to want not only
to catch up but to stay up with the economically developed nations. The
domestic need for a new trend in civilian technology is reinforced by
the marginal but significant requirements that must be met in order to
export in a competitive world market.
In the past, especially in the 1930s, the Soviet leadership was content
to import only enough technology to establish a mass-produ et ion
capability in selected high-priority industries. At that time the beneits
of keeping up with the modest technological changes occurring in the
depression-ridden West were apparently overridden by the political
10 Hardt, Soviet Commercial Relations and Political Change, op. (it.







cost perceived in limited dependence on the West. Moreover, over-
taking the West in physical levels of output was perceived by Stalin
as more important than improving the efficiency of output that might
result from a continued pattern of Western technology transfer.
Closing the technology gap in selected economic sectors was enough;
keeping up was neither necessary nor worth the political risk.
In order to get on the. world trend lines for technological ciiange
in the current period, the Soviet economic se actors require nore than
the ability to duplicate the current or recent Western models. In the
modern automotive, computer, pet roletuu, chemical, metallurgical ages
that Soviet, officials wish and probably need to enter, their industries
must be able to keep up with the Western rates of technological
change. WVorldwide tecliological clianges must be ilnported and
quickly am t eficiently reflected in niass production model changes.
Lewis Brauisconb, a vice-president of IBM, and -Western corporate
executives in other fields have noted that this mass production capa-
bility is a serious deficiency in Soviet industry." The perceived need
for Western systems analysis, nian'a'elent, all( new economic forms
in the Soviet economiiic systeni seems to flow froiln the need to keel) tip
and become conipet itiye bv world standards. Western plans, desi- is,
]ialagre'elent and production methods. and niaiketing techniques are
a part of the modified systems aploach. The truck and passenger
car facilities to follow KalnAZ aud ToFiatti may well proceed far
beyond their current pattern of in(ilstrial cooperation.
Another indication of the long-te'ni, contilliis, expanding nature
of the Soviet market are the apparent long-terll con initnilent of
major Western corporlal jins to the Elastern imiarket. liiplicit in West-
ern firms' commiitients to economic relations with the Soviet Union
is the notion that it, is a unique market. In the short run the Soviets
ma v denlaind and receive some preferential prices and credit, and
profits may be low. Ilowever, in the hug run, early Western entrants
to the Eastern market may be in a strong competitive position in an
expanding, large, profitable market. At the same time the political
costs and security risks of Soviet commercial relations might limit the
advantages of normal predictable trade. For example, Western coni-
puters with potential military applications may be subject to Unle-
lictable export controls. The Soviet planners mnay place large orders
in one year and no orders in the following year. Difficulties in finail-
in- trade or domestic political factors affecting trade may lead to
sharp changes in Soviet import policy.
Among the other indications of a Soviet commitment to long-term,
expanding interdependence with the West are loini.-terln scientific
and teelmological agreements with various corporations; the web of
bilateral goverTimental exchanges: 12 construction of a trade center in
.Moscow; anid the apparent projection of expanding Western involve-
mnent in the Tenth Five-Year Plan (1976-S).
11 Lewis M. Branscomb, "Science, Technology and Detente," Occasional Paper No. 17
(Washington, D.C.: George Washington University. Program for Policy Studies, 1975).
'- U.S., Congress, House. Committees on Aeronautics and Technology, Background Ia1te-
rials on U.S.-U.S.S.R. Cooperative Agreements in Science and Technology, 94th Cong. 1st
sess. (Washington D.C. : Government Printing Office, (1975).







TimE TRANSFER OF WVE STERN TIECIINOJ.OGY TO TIIE SO VIE,/T
AtUTO.MOTIVE INDUSTRY':-"
In the two periods of intensive Soviet interest in Western techl-
nology, the First Five-Year Plan (192S-32) and the current ilpio(
(the mid-1960s to the present), the automotive industry has been one
of the high-priority areas of Soviet technology borrowing. This case
study is intended to provide a basis for evaluating the hypoiihes is
that the Soviet orientation to the internati onal economy has urn li-
gone a fundamental change since the 1930s. Specifically, Western tech-
nology transfers to major Soviet automotive projects in the two
periods are analyzed in order to determine whether there is muve
nieit toward what has been termed a modified syste'llis approach to
technology transfer, characterized bY more permanent technolo!iial
ties and more active involvement of Western firusl in the Soviet con-
ony. In addition, evidence is examined of changes iM Soviet ecolnlllie
institutions induced bv technology transfer. The case ml v c(,h.n-
trates on three major project, in the Soviet ant ootive inltrv t lie
Gorkiv automobile plant. which was built with the assistance ,,I tie
Ford Motor Company in the late 192)>s and early 1!8t()s: Ihe V1i,_, a
automobile plant, which was built during the Eiglth Five-Year Pan
with the assistance of FIAT: and flie Kama River truck plant. \w which
is now under const ructioll with assistance from a number of We:,tru
firms.
In some ways the use of foreign technology by the Soviet auto-
motive industry has been typical of Soviet industry as a whole,. Tie
contractual arranmzeoincnits in both 1periois--technic:ti as is>Nt ace con-
tracts in the earlier period and various industrial cooperat ion arrnioge-
inents in the 19(60s and 1970s-were similar to those used in iiv
branches of Soviet industry. Moreover, the rationale for borrowill-g
foreign technology and the domestic environment into 0 which the tolt-
nology was transplanted were similar for the automotive and other
Soviet industries. In the 1920s and 1930s Soviet economic 1)al-Iers
sought foreign assistance to transforin a backward dolnestic ihl utry
with insignificant product ion into a modern mass-productioii indit-try
capable of meetings the needs of a rapidly industrializing economy.
In the 1960s and z1970s, )urchases of foreign teclhnlogy have iccl
viewed by the Soviet leadership as a ineans of modernizing a lar2, but
in many ways inadequate industry and overcoming the ncasii trIy
evident technology gap between the Soviet Union and the industrial
West. In both periods, efforts in the Soviet aittoinotive industry paral-
leled developments in other sectors of the economy.
In the scalo of Western technoloy transfers to the Soviet Uni(on,
the automotive iMdustry may le regarded as somewhat atypical. Il)lr-
ing the two periods studied, the Soviet automotive industry ha '-wen
the recipient of more Western technology than ost other branches
of Soviet industry. According to one Soviet source, the Soviet niOn
spent 311.4 million rubles of scarce foreign exchange for machinery
1' This case study is haned on resarch by G(,orge Ilolliday for a IhD. diissertaion at
George Waslingtoni University.







and equipment for the Gorkiy and Moscow automobile factories dur-
ing the First Five-Year Plan (189.2 million rubles for Gorkiy and
122.2 million rubles for Moscow).13 These two factories alone ac-
counted for over 4 percent of all Soviet imports during the First Five-
Year Plan and exceeded the hard-currency expenditures for such
huge W estern-assisted projects as the Ma gnitogorsk metallurgical
works and the Dnepr hydroelectric station. Additional funds were
spent for expansion of the Yaroslavl autoniobile plant and for various
supplies for the automobile industry, such as glass, metal, and elec-
trical equipment. These expenditures continued, though at a reduced
rate. ditring the Second Five-Year Plan.
Sitiiilarly, large expenditures have been aiud are being made for
am rchasing Western technology for the Sox-let automotive industry
during the 1960s 'and 1970s. The construction of the passenger auto-
mobile plant at Tol'iatti, for example, was assisted by purchase of
about $550 million of Vestern machinery and eqiipment.1 The Kama
Ri-ver truck plant is expected to result in over $1 billion in purchases
fromin t he West.'5 The Tol'iatti and Kania projects represent the major
industrial undertakings of the Eighth and Ninth Five-Year Plans
re.spedtively. In addition, to modernize other parts of the Soviet auto-
motive industry, large purchases of Western technology have been
made during the current periods. Thus it appears that the Soviet
aiutoinotive industry has been the beneficiary of a disproportionate
share of Soviet hard-currency expenditures.
One implication of the high priority given to foreign automotive
technology is that the evi(lence of changes induced by technology
transfer may be more 1)ronotince(d in this sector than in others. How-
ever, as research by Antony C. Sutton "G and others has shown, many
Soviet industries have benefited from Western technology transfers.
Moreover, the experience of the automotive industry does appear to
be representative of a Soviet pattern for using foreign technology
that i characterized by the concentration of purchases of foreign
technology in large new "showcase" projects. This pattern has been
evi(lent in the Soviet chemical, metalworking, and other industries.
The large scale of automotive technolo,'v transfer during both periods
makes it, a useful case study because it hi-ghlights the differences and
,'ontintities of the Soviet approach to economic ties with the West.

The Gor1?y A ?Vtoobile Plant
On May 21, 199, the Ford Motor Conpany signed a contract with
the Soviet, Supreme Economic Council to assist in the construction of
an automobile plant at Nizhni-Novgorod (renamed GorkiV in 1932).
The initial agreement provided for Ford assistance in building a
factory to produce annually about .1 million vehicles of two types:
a passenger car modeled after the Ford Mo(lel A (the Soviet version
was called GAZ-A) and a light truck modeled after the Ford Model
'" D. 1). ,Mlshustin, Vne.shnaia torgoi'ia f industria7iotsii' RRSR (Moscow: Mezhdna-
rodnaia Kntga. 1935), p. 174.
14 Imogene IT. Edwards, "Automotive Trends In the U .S.SR.." Soret Fconomic Prospects
for the SeerntieA. op. cit.. P. 296.
"Chase World information Corporation, KoniZ. the lhlijon Doflar Bfeginning (New
York : the Corporation, 1974).
fl Antony C. Sutton. Western Technonoqy and Roriet T'eonomir Deretopment (3 vol., Stan-
ford, Calif. : Hoover Institution Publications, 1968, 1971, 1972).








AA (the Soviet GAZ-AA).'7 The 1929 contract was followed by Sup-
plementary agreements with Ford to increase the capaciy of thle
plant and by contracts with other Western firms providing for their
assistance in various specialized operations at the plant. Western as-
sistance to the automotive industry was intended to coincide with the
First Five-Year Plan, though the contract with Ford continued into
the Second Five-Year Plan.
The Soviet contracts with Ford and other Western firms for as-
sistance in automobile production Were' auiionlfg the many "tc-liltical
assistance agreements" conmclude(l b the Soviets in the late 1920s and
early 1930s. The technical assistance a agreements involved Soviet pay-
ments to Western firms for technical data, patents, know-how, and
other assistance, to be provided over a specified period of time. They
differed frolm the conces ions agreements t hat the Soviet overnmintt
had more commonly signed with Western firms in tie 1920s. Under
concessions, WVestern firms invested capital equipmennt in designated
areas of the Soviet economy to develop resources or to exploit other
economic opportunities. Typically, a Western firn managed the proj-
eA't and was allowed to repatriate profits after making royalty pay-
nients to the Soviet government. ()wnership of the capital was'trans-
ferre( to the Soviet government. ('oncessions were gradually phased
out in tie 1930s, when technical assistance contracts became the pre-
ferred means of cooperating with Western companies.
Techmical assistance agreements, like concessions, did not provid(e
for repatriated profits or royalty payments to the government. In-
stead tile Soviet goverm ciwit puri-liase(l machiiwn-y aimd equipment an1
paid a set fee for the services provided by the Western partners. In
addition, the techmical assistance contracts provided no management
role for the WYesterii firms. While technical assistance inevitably in-
volved some. Western advice on managerial inatters, the contracts
were esseuitially vehicles for transferring engineering skills. The
Western firms gelerally showed Soviet specialists how to set u1) a
factory and operate mnaclhines and then left the management of the
completed factories to the Soviets. In this important respect-the
absence of a foreign managerial role-the technical assistance con-
tracts represented a step back from the Soviet policy of allowing
selective Western involvement in the economy and a reassertion of
the industrial bmireancracv's absolute control in Soviet industry. An-
other key feat nie of these agreements was the provision of a schie(lule
according to which the Soviet factory would achieve progressive inl-
dependence from le Western partner. The ultimate success for the
Soviet enterprise or industry involved was ridding itself of the need
to import from tile West or to relv on Western technology.
The Ford arrangement with Soviet government was typical of the
technical assistance contracts and is generally cited in the Soviet litera-
ture as one of the more successful agreements with Western firms.'s
Indeed, it was a well-conceived device for transferring technology to
a country that lacked the economic and technical infrastructure needed
17 Details of the contrcivt ,iro providoi int Aifltorg Trading Corporation, Economic Rt i tu
of the Soviet Union. July 1, 1929. pp, 230-31.
1 L. Mertt.q et al.. "'(oz i Ford." Plano oe khoifistro. no.. 6-7 (1932), p. 25 : V
Kaqtanenko, How Soriet Economy Won Tcchnical Independence (Moscow: Progress Piub-
lishers, 1966).








for such a massive undertaking. In collaboration with other Western
firiii which helped to set up certain parts of the production process,
Ford assisted in every phase of the creation of the plant, from design
to tart-up of production.
Ford specialists developed the designs for a complete factory and
prov6led detailed specifications for machinery and materials, oper-
;itiii instrlctions for the factory, and designs for the automobiles to
be produced. I)rawings of all the tools, machines, and fixtures at the
Ford River 1-ouge plant were also provided. The Gorkiy factory was
not an exact replica of the River Rouoe plant, though many of the op-
erati 41s were essentially the same. The plans that the Ford specialists
)provided contai ned a io(lifications designed to meet the conditions un-
dler wlich the Soviet factory would operate. This was accomplished by
working with a team of Soviet specialists who had the authority for
fil),1 Ip)roval of tie factory's design and for selection of the machin-
ev aid equipmeiit to be pi)lrchased in the West. During the planning
plho,'css for the factory, several Ford engineers traveled to the Soviet
Si nll to consult with Soviet engineers. The Soviets, in turn, sent a
team i of technicians to the IUlited States. where they were allowed to
tad production processes at the Ford plant and also at the plants of
Ford s1Il)l)iers.
F,)rl was not a general contractor for the entire Gorkiv plant. The
Soxiet enigineers and managers jealousy guarded their prerogative in
hiatt crs of design and selection of machinery. Their reliance on Ford
al ,(thers was clearly a matter of necessity, to 1te ended at the earliest
I I e oj)l)o 1 -iin ty. Moreove r. ti i Soviet l -lecialists showed no coin-
pmaict on in rejecting or changing the proposals offered by their for-
ci 2i cc0ainter'pa rts.
'The Soviet government signed contracts with other IT.S. firms to
perform specialized tsk in l)uilding and equipping the factory. Con-
tr;wl ; were signed with companies such as the Timken-Detroit Axle
(C'oill)a v. the Brown Tipe Gear Company, and the, Austin Com-
nyin iN The Austin ('omipany, which had built several U.S. automo-
bile I l:ants (icluding, Ford plants) signed a contract with the Soviet
goYt cillannt in August 1929 to design and direct the construction of
the Iuildings housing the factory. This was to be completed not later
tlun a he fall of 1911 a ad would accommodate a revised planned capac-
itv of 1. O,OOO v ehicles.20 A number of Austin engineers traveled to
i e S, v.iet I Tn iou t o speivise thlie work. The Soviet engineers were dis-
s)l i 4ie( with Ast4in's initial design and made changes in it; 21 how-
ever. Austin1's e11t iact was s uccessfullv executed.
lie co i'ntact with Ford provided for Soviet a ltonolbile production
to -tI rt 1) il Ii itially the Soviets nmrel v assembled the ve-
h ieos from 1), rt p roduced by Ford in thie 1 United States. For this pur-
1o)o~ thI(re were i xo assemuhlv plants, one at the Gorkiv site and the
olher ill Nro"cow. The Moscow plant, called the Kim Works, was an
ainu'ed railroad shop that the Soviets, with Ford's assistance, con-
veted to allt,) pro(Iact iol. The Moscow plant assembled tile first ve-
hicles, while the Gorkiv plant gradually phased in production of
"' S tt-,n, o) cit.. vol 1, p. 248.
2a .\,t(,r- o i rpora ion, E onoimir Rcir'ic of the Soviet U'nion, November 15. 1929,
I e:7'O.
"1 1 'olinoi A le'.h nn, it ai Gtor'ko ..jj i tvornobhi/n yi (Moscow :Profrzcdat. 19(14), p. 241.







various parts. After the first year, bodies, fenders, hoods, and all sheet-
metal parts were to be produced. Over the next four years, fittings, en-
g4inties, axles, instruments, batteries, and electrical eqli pment would be
raised iil; so that after five years the (iorkiy plait woild be working
-it capacity and produciig ]i1ost of tile parts needed for the two ve-
hicles it would produce. In fact, ilie pro(tuction schediile proce ed
much slower than planned btbt in the end tIiis plan succeeded in giving
tlie Soviets the largely self-sulicient autoliio)ile idunstrv thiey wallted.
An integral part of the contract was Ford's agreement to trail
Soviet workers mid technicians, both in the Soviet Illioi an( thle
United States. Ford agreed to allow 50 Soviet specialists per year,
over a perio I of live years, to A id lv operat io n Ii is factories ill the
U-nited States. Ford sent aIlit a iher of enilcers ald foriell te t ithe So-
viet UTnion to train the Soviets. The t raining was ra pidly plhsed out as
tlie factory nerItem-ed coni)le ioin. B\v 1932 only ree Fl d specialists
reiained as i nstiuctors at t he (lorkiiv fa(toiv.2'> 'Tt-u,. after onl three
v siars the involvement of Ford telnicians alt (iorkiv was virtually
ended.
The Soviek attempted to insure that once in operation the Gorkiv
factory would rel)resent the 1:11est word iM Western technology. The
agreement required Ford to place all of its pitents at the disposal of
Soviet "pecialists. It furl'tier required that any innovations or improve"-
iiients that would be i il ro(lued in For(d aiioi onohile- duirin the life
of t ihe colit rni n tie y als) were to ibe iiade available to I ie Soviet
plant.23 Some evidence siugoests that Ford took this stipulation seri-
ollillv. For example. Ford offered to hell) the Soviets introduice its new
V-8 engine, probably the most important Ford innovation (hirin- the
life of the contract, at the Gorkiv plant.2 (The new engine was still
on Fords dr:lwill, Itioards when thie contract va signed.) The Soviets
declined. preferin to produce the siml)ler and proven Model A. In
1932 Ford continuedd production of the Model A and put the V-8
enine into production in the I-nited States. Soviet slpeoialists noted
tie development. pointing oltthat they had the option to acquire the
new technology, but they did not do so during the life of the con-
tract.25
File V-8 episode reflected a oherne s amolnf 0ome Soviet speeitlist
lbliout their tevhlnoloffical Capabilities that count raised -har!plv witi the
1hoa tfuvlne-ss alonut the Gorkiv phlnt that wai often exhibited in tile
Soviet l)re>s. ro )e sire, the l)reductioi facilitie, it Gorkiv were as
llM((er as ny m automobie plint in the West. Gorkiv's engiinleers even
ituintained that the plant was teelunolo1-ieall.\ superior to Ford's River
flol1'e plant. which was generally considered to be the 1uo154 :dvaleed
in) the WIest.21 The Soviet technicians claimed that tile Soviet plant
wa- llore Ca refuhlv l)lanned. lad more modern nuachinerv, tnd was
more a11toilllIted thil tile Ford plant. Nevertheless, the Soviets 1iad
g"real difficulty in ma/terinf this new technology. The factorY pro-
dueed its first velieles in 1932. but production was interrupted in-
Mortts et ni, op eit.. p, 259.
\mntor, July 1, 19 e29 p eit_. p. 2!'0.
-1 I har, E. S,,S onsoi (with Samuei T. Willims), Mi !'o[hi vor, with Ford (Now Yor!.
N wt,. 1956 19S
N O din "No yy 'F :r v Amerikanstoi I nashei obstannAvskl, "Za rulcn nos 9-it
I!2,2i. ep. 9
irtia e't at., 0o). eit., p. 239.







merous times because of a variety of problems. Among the problems in
the first year were the production of many defective parts, frequent
accidents on the assembly line, inadequately equipped laboratories, and
insufficient supplies.27
The supply problem was perhaps the most difficult. By 1934 the So-
viets had achieved their goal of independence from Western suppliers
-all parts and materials were supplied internally.28 However, these
were frequently of poor quality and, especially in the early years, sel-
dom in sufficient quantities. As a result the Gorkiy plant was not pro-
ducing to capacity when its contract with Ford expired. In fact, total
Soviet automobile production (from all Soviet plants) did not reach
.1 million until 1936.29
The Ford-Soviet contract was a relatively "active" technology trans-
fer mechanism in that it provided frequent and specific communica-
tions between Soviet engineers and their Ford comterparts. However.
the effectiveness of the arrangements was limited by the provision for
an abrupt cutoff of commercial ties with Ford and with Western in-
dustry in general. Soviet economic independence involved not only an
end to imports of materials and parts but also substantial isolation
from technological developments in Western automotive industry. Be-
tween the termination of the Ford contract and the mid 1960s, the So-
viet automotive industry's technological ties to the West consisted only
of sporadic and relatively passive technology transfer mechanisms.
The massive transfer of Western technology to the Soviet automo-
tive industry and to other industries in the 1930s brought important
changes to Soviet economic institutions. The construction of the Gor-
kiy automobile plant was part of the abrupt shift away from small-
batch production in small, local factories to modern mass production
techniques that had been associated primarily with U.S. industrializa-
tion. This shift obviously necessitated changes in Soviet industrial or-
ganization. However, the Gorkiy plant was not a simple recreation of
a U.S. factory. Gorkiy emerged as a Soviet factory, which like other
new Soviet factories developed a uniquely Soviet solution to the prob-
leins of mass production. The differences in the Soviet plant were most
apparent in the emerging Stalinist system of enterprise management,
with its emphasis on meeting plan directives for physical output.
Henry Ford's renowned attention to consumer demand had no role in
the Soviet manager's world.
There were other important differences between the Gorkiy factory
and Western factories such as the Ford River Rouge plant. First, there
were differences in the technological characteristics of machinery and
equipment. In some cases the Ford plant did not have the most modern
machinery available in the West. When Gorkiy engineers believed
that superior technology was available, they purchased it from other
firms in the West.30 In other cases the Soviets rejected what they con-
si(lered "too specialized machinery," apparently motivated by the be-
lief that, under Soviet conditions, more labor-intensive operations
would be efficient.31
27 Ibid., pp. 2160-21661.
28 Sutton, op. cit.. p. 247.
PT.S.S.R. Tasentrarno staticheskoe upravlenie pri Sovete Minlstrov SSSR, Promyshlen-
nost' SSSR ; 8tatigticheskii sbornik, 1957, p. 223.
30 Mertts et al.. op. cit., p. 239.
m David Granick, "Organization and Technology In Soviet Metalworking: Some Condi-
tioning Factors," American Economic Review, 47, no. 2 (1957) : 632.







The Gorkiy factory was also much more vertically integra ted tha
Western automobile factories. Gorkiy not only assembled automobiles
but also manufactured most of the parts and even some of the machine-
tools it needed. This was a departure from the system of subcontract-
ing that had developed in the Western, especially the U.S., automobile
industries. The absence of complementary industries in the Soviet Un-
ion and the consequent problem of an unreliable supply system made
the Gorkiy approach necessary.
A unique feature of the Gorkiy plant was the combined construction
of the factory and of an entire new city to provide housing and serv-
ices for the factorys employees. The Soviets chose not to locate
the factory in a large metropolitan area where workers and ain
urban infrastructure would already be in place. The plant was actuial-
ly constructed outside of Gorkiy (then Nizhni-Novgorod), where no
infrastructure existed. Although the construction of auxiliary facili-
ties required additional allocation of scarce capital resources, Soviet
planners seemed determined to create a completely modern island
within the backward Soviet economy. This pattern was copied for fu-
ture "avtogiganty" in Tol'iatti and Kama.
Finally, an important difference between Gorkiy and plants in the
West was the lack of attention and resources that the former paid to
technologica] progress. The research and development falcilitie- at
Ciorkiy, as in other Soviet factories, were kept to a minimilm. Some
Soviet specialists objected to this deficiency. For example. E. A. (Tihl-
dakov, a prominent Soviet automotive engineer, pointed out that West-
erni methods of producing aultomobiles were constantly changinQ. IV-
sulting in more efficient production and improved vehicles. In the Ford
plant, he wrote, over 4,000 clianages in production techniqlues had been
introduced in 1929 and 1930 alone.32 Chudakov believed that Soviet in-
dustrv could maintain this pace of teehnoloical pro"ress only I v
spending considerable funds on research and development:
Thus. mere copying of foreign production, although it might be the most ra-
tional approach at present, is in practice impossible and dooms us to falling iln-
mediately behind the general tempo of production abroad. IParallel with the
development of production, it is necessary to establish at the factory a research
organization for improving production and making it more efficient.'
The subsequent retardation of technological change in the Soviet
automotive industry suggests that Chudakov's advice was not accepted.
Chudakov noted in 1936 that the GAZ-AA truck had already fallen
behind the technological levels of comparable Western models. The
GAZ-AA, he wrote, "is not the most modern model and has a com-
paratively weak engine. The most modern trucks of this tonnage have
better dynamic qualities." 3 Chudakov's approach, while it was un-
doubtedly ideal from the Soviet engineer's viewpoint, could not be ac-
commodated to the overall needs of the Soviet eonomy during the pe-
riod of rapid industrialization. The economic development strategy of
the first two five-year plans placed priority on maximizing physical
output, not on improving quality. For automobile production. max-
imization of output was particularly important because of the ex-
32 E. A. Chudakov, "Problemy avtotransporta." Sotsialistichfqka ia rekowgtruktsiia i nauka,
nos, 2-3 (1931). p. 154.
38 Ibid., p. 155.
3 E. A. Chudakov. "Razvitie dinamichp'skikh kachestv avtomol#ilia," Sotsiatistiche.kaia
rekonstruktsiia i nauka, no. 3 (1936), p. 34.
36-144-79--6







tremely small existing automobile park in the Soviet Union, the fln-
portance of the automobile to other sectors of the economy, and the
high cost of importing them. To expand the production of automo-
biles at the necessary rate, the Soviets had to concentrate scarce capital
on tooling up on the basis of existing technology and mass producing
a few standardized vehicles-primarily trucls. With this goal in
mill, research and development and retooling for new models had to
Nb considered a hlxurv. Likewise. continuing contracts with the West
were considered too costly, both in economic and in political terms.

TilE LEGACY OF THE STALINIST ECONOMtIC GROWTH STRATEGY
In view of the priorities of economic planning during the period of
rapid industrialization, the performance of the Soviet automotive in-
diistiry in the Stalinist period miust be considered a partial success. A
hrIOS production industry was established in an extremely short period
of ine. Vhile the amnbitiouls output goals of the econiioie plannerss
were not met, the level of production rose at an impressive rate-suffi-
cinnt to meet many of the needs of the economy. The industry attained
a reasonably high level of technology in the prewar period, although
it proved iicalal)le of keeping pace with the automotive industries in
tlie West. Perhaps most importantly, froni the vantage point of the
political leadership, it was a self-contained industry, independent of
the industrial West.
However, the structure of the Soviet automotive industry was not
suitable for the needs of an increasingly coiiplex po4t-Stu iiiist Soviet
economy. Predictably, the Soviet emphasis on maximizing output on
the basis qf a given technology annd the drive to isolate Soviet indus-
try from t Me Vest resulted in a backward, stagnant industry. The state
of the in(li trv became increasingly evident to Soviet specialists, who
in te post-Stalinist era began to offer public criticisms.35
Efforts to spur technological progress were also thwarted by fac-
tr' other than the Stalinist ,t'rowth strategy and the industry's isola-
tion from tihe West. It was also recognized that organizational prob-
leits. particularly the high de-ree of vertical integration in Soviet
am tomotive plants, were partially responsible for its backwardness.36
On the model of the Gorkiv factory, each Soviet aut mobile plait
ten ded to )lroduuee as many of its own coili)onents, parts. and tools
a; possible and to develop networks of specialized suppliers that were
priu arily responsible for supporting production of one type of vehicle.
As a result. the industry is )lagued by a lack of standardization, re-
suliting in ineftient 1)rodlietion of a large umii ter of parts in small
(1tiant ities for the different types of vehicles in the various factories.
The creation of large, independent enterprises generated other prob-
lhow -. First. these enterprises ten( to duplicate each others' efforts, par-
ticilarlv in the field of research and development. Technology that is
developed in one l)lant is not always shared with other enterprises.
Small. self-contained R&D facilities have proven inadequate for keep-
Poee for example. Promye+huenno-ekouomic1,-aia ga7zeta, February 3, 1957, and Novem.
bo'!4 14, i971. ,itod in Mirinev K. Schwaiherg, "The Soviet Automotive Industry: A Current
A .'' :1N Ktartsiv and G. i'azylonko. "Kakie nvtomobill nuzhny narodnomy kbozlaistvu?"
Proa da, Mav 18. 1965, p. 2: William P. Baxter, "The Soviet Passenger Car Industry," Sur-
rey 19 (1973) : 228.






75

ing abreast of new technological developments. Moreover, the automo-
tive industry tended to grow primarily by expanding old enterprises.
This practice. Soviet specialists claimed, brought about growth with-
out modernization.37 The expanded plants tended to produce at the
same level of technology as the parent plants.
This state of affairs was also recognized by the polit ial leader- hip.
In a speech to the 22nd Party Congress, Nikitl Klhmislhchev singled
out the Moscow Likhachev automobile factory as an example of how
slowly new technology was beinl Ja produced io Soviet indlust rv. A(-
cording to Khrushchev, the factory was producing four-ton trucks
that had been put into production 14- years earlier and had had no
significant improvements durin- that period. Sul t ant ial I ISOi leS
and time (about six years) had been spent to design a nd oira nize pro-
duction of a )etter truck, but no progress had been male.
Khrushchev hiniself bore responsibility for eon inuing 1 he( Stalinid
neglect of the Soviet I)assenger car industry. On a numer of ,) of,
lie expressed his disdain for widespread Fprivate ownership of rar in
the AWest and advocated further development of inisa 1r,. it I(1
car rentals as an alternative for the Soviet Union. Apiparentlv tlis
was a controversial position. Some Soviet engineers criticized the ex-
isting Soviet passenger cars as obsolete and wasteful of resomiees.:" A
suist antial lolbtY advocating a transition to pmas production of inex-
pensive, small cars. developed in the industry. A 1lf-hea rated attenlipt
to produce such a car began with production of the "ZapIoroihet in
1962. However. the Zaporozhets (which is still being proved) has
proved to be an unsuccessful venture, both in termsl of it ability to
incorporate the latest technology and its appeal to the Soviet consiui-
er. Its lack of success, which was apparently a result of inadequate
experience and opposition from supporters of Khrushchev's position,
probably contributed directly to the decision to seek foreign help in
building a new small car factory at Tol'iatti.
In a 1965 speech to the State Planninat Committee. khrushev s
successor as Premier, Alexei Kosygin. criticized the previous lead'r-
ship for stubbornlv adhereing to the idea that the Soviet Vnion did
not need to develop production of passenger cars on a large cale.40
Kosygin suggested that the new leadership would change this ap-
proach. In the same speech. Kosvgin criticized the automobile industry
for manufactmin ol)wolote trucks that did not meet the needs of thi e
Soviet economy. He claimed that Western manufacturers had lon-
a-,o ceased production of some of the types of trucks still bein
produced in the Soviet Union. He expressed pessimin about the
Soviet autonlobile industry's ability to improve the situation: "We
are reconstructing ZIL anl GAZ for output of vehicles with greater
capacity, but I amf not certain that everything has been done proper-
Iv." 41 Kosygin's speech reflected an awareness on the part of the new
leadership of two elements in the stagnation of the Soviet automotive
SIbid.
11 Nikt q, Klhru-hel ov. sppoeh to 0-e 22rld eoiI.r(_,z of the C(omm ikti Party of rh
or if, U'nion. October 17 31. 1961 (Moqeow:Go'idarstve niop izdte'stv politiehp14oi
literatury, 1962), p. 62.
M v. Papkovkii, "Kakoo tipa legkovye avtomohili nam nizhny." Komm nit., P6 No- 14,
1959. pp. 126-2S.
40 Alpksei N. Kosy~ln. "Polyhenie nauchnoi obosnovannoisti planov-vizbneishqia zadlneha
plInrovkh orzannv," Planoroe khoziaisto, no. 4 (1965). p. 6.
41 Ibid., pp. 9-10.







industry. Not only was it falling behind Western industry tech-
nologically-a state of affairs that had been recognized by Khru-
shchev-but it was also failing to meet the growing and changing
needs of the Soviet econonv. These needs included fulfilling consumer
demands as well as modernizing the freight transportation system.
In his 1965 speech, Kosygin did not mention the possibility of turn-
ing to Western automotive firms for assistance. However, his assess-
ment of the state of affairs in Soviet passenger car and truck produc-
tion suggested the rationale for the leadership's future decisions re-
garding the Tol'iatti and Kama plants. One aspect of the new lead-
ership's approach has been an attempt to satisfy at least a part of there
Soviet consumer demand for passenger cars. The leadership has
recognized a need to provide quality consumer goods as incentives
for Soviet citizens, and Soviet researchers have found that the aver-
age citizen desired a passenger car above all other consumer goods.4
Initially, production plans could only meet the needs of relatively
well-to-do Soviet citizens. The cost of the new Zhiguli-the passenger
car produced at Tol'iatti-is prohibitive for most Soviet citizens,
and the waiting lists are still long. While long-run production plans
suggest an effort to provide passenger cars for a wider spectrum of
the population, it is unlikely that cars will be available for most Soviet
citizens in the near future.
The other important goai of the new approach to automobile pro-
(uction is to provide a flexible, comprehensive automotive freight
transport system. The Soviets have long recognized the need for trucks
to complement their rail and marine transport systems. Their present
truck park is c nsidered inadeqiuite both in terms of numbers and
of technological sophistication. Perhaps equally important is the
shortage of specialized vehicles for the many different jobs required
of f ruck transport in a modern economy.48
One glaring deficiency recog'nized in the early and mid-1960s was
the shortage of heavy-duity trucks with large load capacities. a problem
that will be ameliorated by the start-up of production at Kama. How-
ever, Kama will not meet the needs for other types of vehicles.
For example, there will still he 'n unsatisfied need for various types of
specialized vehicles, such av trucks to be u sed on construction sites and
very rough terrain, which is found in Siberia. and elsewhere. Even
more important is a steadily growing need for trucks with a high
cargo carrying capacity largerr than Kamaz trucks) to be used on
the small Soviet network of first-class roads.4 The engines and bodies
of Kamaz trucks are specially designed with good cross-country
capabilities, making them suitable for rods without good founda-
tions, that is, for the vast majority of Soviet roads. However, they
will not be the most efficient vehicles for intercity superhighway
freight transport. The latter accounts for a growing percentage of
Soviet automotive freight transport. The need for sech vehicles will
presumably be net by further expansion of existing facilities and
construction of new truck plants.
42 TT A. Zamo7ikin. L. N. Zbillnn. and N. 1. Frolova, "SdvIgi massovom potreblenll lch-
most'." Voprotl fro.sofii r, (1969) : .13.
'3 A. A. Anders, "Problems of the Automotive Industry for 1972 and the Development
of New Automotive Technology "A rtomnlhimaia promrishlenmoRt'. no. 1 (1972).
4D. Vellkanov. "Neods of National Economy in Technical Proniress In Development of
Motor Transport Faeiliti,. "Artomobit'nim tr npnort. no. 11 (1974). t-rnqlated by .Aint
Publications Research Service. USSR Trade and serrices: the Service, 1975, pp. 25-26.





77
The current expansion of the Soviet automotive industry appears
to be only a first step. To meet the economy's need for automobiles,
as perceived by Soviet specialists, a continuing rapid expansion can
be expected in the foreseeable future.
The Volqa A atomobile Plant at Tol'iatti
Within four months after Kosygin's speech to Gosplan, the Soviet
government signed a protocol for scientific and technical cooperatioll
with the Italian automobile manufacturer FIAT. This type of agree-
ment was unusual in 1965 but has since come a commonly used Soviet
device for initiating long-term contacts with Western firns. The pro-
tocol led to discussions between FIAT and Soviet officials that cul-
minated in the signing of a contract on August 15, 1966, providing
for FIAT assistance in the construction of a massive new passenger
oar factory in Tol'iatti.
Under the contract, FIAT agreed to provide designs for a factory
to produce 600,000 passenger cars 45 Included in the contract were
the license to manufacture the vehicles in the Soviet Union, tech-
nological and organizational studies for the factory, and assistance
during the start-up period. The agreement foresaw production of the
first automobiles in 1969 and attainment of capacity production in
1972. This ambitious schedule was not met because of a variety of
problems not unlike those that had been experienced by the Gorkiy
plant in the 1930s. Once again the major problem was deficiencies,
both quantitative and qualitative, in the Soviet supply system.46 The
first cars were produced one year behind schedule (in August 1970),
and full production capacity, which had been revised upward to
660,000, was attained late in 1174.
Tol'iatti's products are three modified versions-standard, luxury,
and family-of the FIAT 124, named the "Zhiguli" in the Soviet
Union and the "Lada" for export.. Production was scheduled to begin
on another model, the "Niva," in 1976.47 FIAT's engineers were forced
to make extensive modifications in order to make the vehicle suitable
for Soviet conditions. Many parts, the suspension system, and the
frame had to be reinforced, and the frame had to be raised to with-
stand rough Soviet road conditions. All the mechanical parts had
to be adapted to the extremely low temperatures of some regions
of the Soviet Union. Gas tanks were enlarged because of the small
number of service stations. In the end. 65 percent of the parts were
different from those of the standard FIAT 124.8
Like Ford's role at Gorkiy in the 1930s, FIAT participated in every
phase of the project, from designing to initial start-up of produc-
tion. However, FIAT's advisory role went beyond the role of Ford
in several respects. First, compared to perhaps a few dozen Western
specialists at the Gorkiy plant of the 19'30s, about 2,500 Western per-
somel went to Tol'iatti, including 1,500 from FIAT.49 During the
'6 Some of the details of this contract are provided in Antony C. Sutton, Western Tech-
nology and Soviet Economic Development, 1945 to 1965. (Stanford: Hoover Institution
Press, 1973), pp. 200-203; and V. Buffa, "Economic and Commercial Cooperation between
East and West," draft of a speech, November 3, 1973, provided by Italian Embassy,
Washington, D.C. (Buffa was in charge of FIAT's operations at Tol'liatti.)
""Why the Volga Automobile Plant's Production Schedule Has Been Disrupted," Radio
Liberty Dispatch, November 8, 1972.
4? Sotsialisticheskaia indu8triia, September 10, 1975, p. 4.
"Buffa, op. cit.
Ibid.







same period, over 2,500 Soviet technicians went to Italy for training
and technical work-about ten times the number of Soviet personnel
who traveled to the United States in the earlier period. Moreover,
foreign involvement at Tol'iatti continued for a much longer period
of time than at Gorkiy. Thus the personal contacts accompanving
the technology transfer were far more numerous in the FIAT-Soviet
transaction. In I.estern countries, such personnel exchanges are gen-
erally considered to be an essential element of effective technology
transfer. The Soviet political leadership, while apparently aware
of the need for personal contacts, has generally tried to limit them
because of real or imagined harmful side effects. Thus the scale of
personnel exchanges in the FIAT-Soviet transaction represents a
significant political concession and an important new development in
Soviet economic relations with the AWest.
FIAT also had a different role as a supplier of capital equipment
and licenses for the plant. The contract provided not only for FIAT
to sell niclinerv and equipment to the Soviet plant but for FIAT
to act as a consultant for other Soviet purchases in the WVest. Thus
a large percentage of the WVestern machinery installed in the Tol'iatti
plant was produced for FIAT by other Western manufacturers on
a s-idcont tact basis. FIAT speciaIists selected and purchased the equip-
ieit and sll)pplied it to the Soviet plant. FIAT also acquired licenses
to produce components manufactured by other Western firms and(
sold them to the Soviets. The assembly and installation of all Western
machiinerv and equipment were supervised bv FIAT. and Soviet
manuactured materials were sent to FIAT's factorv in Turin to be
testA for quality control. The degree of FIAT's involvement at
Tol'iatti appears to be unparalleled in Soviet foreign economic rela-
tions. A similar foreign involvement was considered but could not be
arranged to the initial planning of Kama and may be considered for
future industrial cooperation arrangements.
Another important aspect of the FIAT-Soviet arrangement is the
prospect for a continuing lone-term relationship. The traditional
Soviet agreements with Western firms. ineludin p the agreement with
Ford. provided a definite cutoff date, followed by complete indepenld-
ence from the West. FIAT. on the other hand. has ostahlilmed a rela-
tively permanent work;n relationship with the Soviet Uinion. The
1965 scientific aiid technical cooperation agreement provides a .sis
for leo..rol iMtino i nntracts for FIAT involvement in other parts of the
Soviet econovomV. The original five-year agreement has been renewed
twice, in 1970 "and 1975. Moreover ,conhSiderl"tion as lbeen given to a
new contract for FIAT ass-i-tance in expandiing the capacity of the
Tol'iatti plant to p)erha)s twice its present size.50 thouhrl FIAT's will-
ino'nes to ex)an(l the capacity of a potential competitor is question-
able. The Soviet- are clearly interested in maintaining this relation-
ship. One Tol'iatti enlineer. citing the development of new equipment
at FIAT', Italian plmt, remarked. "This euwrie cannot be i -
nored : we nmst simply luse the establ ished USSR-Italy channel more
actively and on a larger scale." 51
OEdward,. on eit.. p. 296.
,1 "Orri i71 Iut ID 11 'cl 1 ( ehiknielhes,- ilk rnzrabn~ov na raze, 'Ekononija i orqani:ctdi
promys!.hlcmnoro proizodstl'la, no 1 (1976) p. 162.







A major new development in the Tol'iatti project has been Smvlet
solicitation of Western assistance on an industrywide basis. Western
technical assistance is involved not only in the aiitoniobile l)riodt i01
but in building and modernizing Tol'iatti's supply network, (levetol)-
ing a domestic service network for the new Zhigulis, and inarketibg
the cars in the West. Western assistance in these areas arallets
Tol'iatti's divergence from the traditional Soviet pattern of building
isolated, vertically integrated )lants responsible for all phases of
production but having inadequate ties to their suppliers and little
responsibility for the ultimate disposition of their product s.
To be sure, the plant is a highly integrated operation by Wczetern
standards, combining all the basic production processes in bolnti:
casting, forging, stamping and pressing, engine production. asselly, N
and tooling.52 However, a large network of suppliers-nuth n nie e
extensive than previous Soviet automobile pl)ants-has been developed
for Tol'iatti. Two-thirds of all the parts and materials for the Zhi411i
come from other plants,"a many of which have been newly constru ted
or modernized with the assistance of Western firnis.51 In addition,
many parts and components are being su)plied bv EaI Eiirop, ni
countries. Poland and Yugoslavia. which also 1'odlice FIAT-desiam:d
cars, are major suppliers, while Bulgaria and ttungary also suplv
some parts.5 The factory might have )een even more decentralized.
Before the Tol'iatti plant was built, there was a debate among, Sox-iet
planners over whether to disperse it by biilin" sma 11er fautori in
several towns. This variant lost out because of the leadership's in-
sistence on starting production as soon as possible. It was decided tlt.it
an early start-up could best be accomplished by building, the entire
plant at one location.6
In 1972 Tol'iatti introduced a "company system" for serilcin i
ears-an important first in the Soviet automotive induistry. The -v.Y-
tern. which is apparently patterned after similar operations in twc
West, includes presale preparation, technical mainteuane. and w: r-
ranty and general repairs. For the first time. the Soviet automoile
purchaser receives a service booklet that describes maintena nec sch iles. and the purchaser is entitled to free warranty repairs for a year
or 20.000 kilometers. The purpose of this system is to correct a chronic:
problem of Soviet car owners-inadequate servicing facilities and a
lack of spare parts.
A large sl)are-parts production department has been put into olprv-
tion at Tol'iatti, and a nationwide network of auto centers i, i(.i ,(
developed. Of the 33 such centers planned by the end of 197. how,,i,.
only one-third were coml)leted on schedule..'8 Western firm are play ii
an important role in equipping these centers. The service network.
along with the production facilities at Tol'iatti, the sippliers of s',ue
52 Ibid., p. 296.
3 Izrestiia, Deeember 18, 1974, p. 3.
51Edwards. op. cit., p. 296.
5 Ibid., p. 296.
""Aron t,,iinoi~en. soviett Scipnce nnd the Eeononit!/Planner,." pi'Por d.-
livered at the Workshop on Soviet Science and Technology sponsored by Georue Wa -
ton University and the National Science Foundation, Airlie House, Airlie, Virginia, N v,-
ber 1R-21. 1976.
57lzvestiia, Mar. 3, 1974, p. 3.
M Andreas Tenson, "To Few Service Stations for Soviet Cars." Radio Lilierty Dispatch,
Aug. 20, 1974.







parts and components, the engineering and design sections, and the
training facilities, are all supervised by the production association
( poizvodst vennoe ob'edinenie) AvtoVAZ.
Tol'iatti is also departing from traditional Soviet practice by ear-
marking a large part (30 percent) of its production for foreign sales.
Most of its foreign sales have gone to Eastern Europe, but an effort is
underway to market a significant number of Ladas in Western Europe
and North America. Ladas and other Soviet cars, particularly the
Moskvich, are exported by a foreign trade enterprise, which has devel-
o)ed a novel approach to marketing these vehicles in the West. Joint
stock companies have been created with foreign firms that have exper-
ience in meeting the special needs of Western markets. Two of the best-
established of these joint ventures are Konela in Finland and Scaidia-
Volga in Belgium.
Tol'iatti's managers have shown an awareness of the need for con-
I inued technological progress that is uncharacteristic of past Soviet
industry officials. Tol'iatti's general manager, A. A. Zhitkov, recently
complained to a Pwaida correspondent of the tendency of Soviet sup-
pliers to "lower the technical level of equipment offered to us," which,
he said, "is a retreat by some branches associated with us from positions
a lerady won." zi He asserted that their ability to improve the Zhiguli
depended on improving the quality of the machinery and materials
supplied to the plant. The management's concern with maintaining
technological progress at the plant has resulted in continued purchases
of foreign technology, such "s a 2,000-ton )ress and a set of mechanical
conveyors, including operational know-how, from the Japanese firms
and a license to manufacture a new automatic ignition device from a
French subsidiary of Bendix Corporation.
A Soviet economist, E. B. Golland, has suggested that it is time to
formulate a complete program for reconstruction and modernization
of the Tol'iatti plant.,'' He noted that the world level of automobile
manufacturing technology is progressing at an extremely rapid rate
and that the Tol'iatti machinery and equipment are already becoming
obsolete and worn out. Golland recommended that the Tol'iatti's man-
czers proceed on two fronts: r-eation of a domestic industry capable of
reducingg modern automobile nimuifacturing machinery and equip-
iment. and purchase of foreign equipment and licenses. Thus, foreign
involvement at Tol'iatti reflects a continuing pattern of technological
interdependence, in sharp contrast, to the Gorkiy project.

The Kama RIrr Trueek Plant
The Kama River truck plant (KamAZ) was undertaken to boost
rapidly the production of trucks in order to provide a more balanced
f,'ei ht transport systein for the Soviet economy. The project was
also designed to bring about another massive infusion of Western
automotive technology to complement Tol'atti's contributions to tech-
nological progress in passenger car production. KamAZ is being built
5 Pravda, Au. 29, 1975, p. 2.
Business International. Ea.ztern Europe Report, Sept. 19. 1975. 7). 266; and Jan. 9.
1976. p. 5.
P, E. 11. ollnnd, "Tekhnichosknia o~nova vysokol proizvoditel'nosti truda," Ekonomika
orqln izatsiia promyshlennogo proizrodstra, no. 1 (1976), pp. R4-86.







at Naberezhnye Chelny with a capacity to produce 150,000 heavy-duty,
three-axle trucks and 250,000 diesel truck engines a year. Western teclh-
nology transfers consist of machinery and equipment shipments anld
engineering and design assistance for various parts of the complex. The
Soviet hard currency payments to the numerous Western firms provid-
in- assistance are expected to total over $1 billion.
In the construction and equipping of KamAZ, the Soviets are fol-
lowing a markedly different approach than that of the FIAT contract.
The most important difference is the al)sence of a Western general con-
sultant to select foreign technology and coordinate the deliveries of
Western machinery and equipment to the Soviet site. The new
approach is dictated by necessity, not choice. In the initial planning
stage, Soviet officials approached several Western firms, including
Ford and Mack Trucks in the United States, )aimler Benz in West
Germany, and Renault in France. These firms declined the role of
general consultant for a variety of reasons. Ford decided against invol-
vement after the U.S. Department of Defense opposed the transaction.
Mack Trucks believed that the project was too large and would tie up
too much of the company's resources. Apparently all of the Western
firms were influenced by problems that had been encountered by FIAT
in its role as general consultant for the Tol'iatti plant.
Faced with the unwillingness of Western firms to undertake the job,
KamAZ's managers were forced to do it themselves. To assist the proj-
ect's directors in Naberezhnye Chelny, a special purchasing commis-
sion (Kamatorg), with permanent offices in New York and Paris, was
established. The commission's purpose is to search for the best Western
technology and to sign contracts with suppliers. Western businessmen
who have dealt with KamAZ's specialists have been impressed with
their expertise in general and their knowledge of Western manufactur-
ers in particularc12 Most Western observers believe that the Soviets
have done a good job in selecting the best Western technology for vari-
ous production processes at KainAZ.
However, the absence of a general consultant has contributed to
serious problems. In general these problems have been related to the
task of blending various technologies-those from various Western
countries and that of the Soviet Union-into a consistent, integrated
manufacturing process. A dramatic example of this kind of problem
surfaced in the dispute between Soviet officials and representatives of
Swindell -Dressler, the U.S. firm that has assisted in designing :1nd
equipping the foundry at KamAZ. At one point, Soviet officials
charged that Swindell-Dressler was not fulfilling its contracts on time.
Swindell-Dressler spokesmen. in turn, complained that they were not
given sufficient information about related machinery supplied by other
firms or about the buildings in which the foundry was to be housed.63
These problems were exacerbated because the Soviets initially did not
allow Swindell-Dressler's engineers adequate access to the construction
site. In some cases Western machinery was delivered but would not fit
into the buildings that had already been constructed, necessitat ing
modifications in the buildings. In other cases machinery purchased
2 Donald F, Stingel. speech delivered at George Wasbington University, Washingtou,
D.C.. on February 25. 1975.
ft Ibid.







from one supplier had not met the specifications required by the ma-
tiinerv anl eqiip1ieit supplied by other firms. The job of coordinat-
the infusion of foreign technology, one of the most difficult tasks in
a .- technology transfer, had been a vital part of FIAT's assistance at
OwTol'iatti project.
Confronted with delays that have put KamAZ's schedule back at
least two years, Soviet officials have shown an awareness of the short-
comings at the project. Without attributing their problems to the lack
of a Western general contractor, M. Troitskiy, the Party regional sec-
retary in the province where KamAZ is located, identified the major
p o1Jniem in the construction of KamAZ as the absence of a "'systents
apiroaclh. Troitskiv indicated that large numbers of sophisticated
n ..,lhines have been brought to KanAZ without careful planning of
4h way the different parts of the plant would fit together. "In short."
1' comlildel. "for projects such as KamAZ, what is needed is not
iply mnany machines and mechanfismns. lut systems of complementary
n ':(hines." '" This is precisely the contribution that the Soviets had
so -fht from a Vestern firm. Since the experience at KamAZ, Kama-
to Lr officials have publicly indicated that they prefer Western general
c,' sultants for future large projects.65
The size of KamAZ appears to be the major cause of many of its
v blems. When completed, it will be the world's largest heavy truck
plaint. Like FIAT and other Soviet automotive plants, it will be a
~luinl inte 'rated facility. combining all of the main processes for pro-
dlh 'in trucks and diesel engines. In fact, the finished complex will be
oj!siderahly larger and more integrated than the Tol'iatti plant. More-
or., Soviet engineers have more responsibilities at KamAZ than they
0d during construction of previous Western-assisted projects. Conse-
(olntlv there was no previous experience or model from which
KamAZ's planners could learn. Troitskiy pointed this out as follows:
T'ven the construction of such a modern and in every respect progressive plant
s VAZ (Tolfiatti). was not an adequate model. In erecting that plant, the type
w '(I design of the future vehicles and the technology for producing them were
:fl]-:dy known. At KamAZ, the models for the vehicles and the technology were
b(- g created at the same time that the construction was proceeding.66
Some Vestern businessmen believe that the Soviets made a mistake
i) lecidlinc to concentrate such a large production facility at one site.7
I decision was made only after extensive debate (which paralleled
tb!. earlier dea)te over the location of the Tol'iatti plant) among
Soviet economic planners and engineers.6 Apparently the opposition
to fie KamAZ complex was strongest anong the economists at the
S,.ote Planning Committee. Its opponents argued that truck produc-
I ir should be more dispersed, along the lines of the U.S. automotive
i,,uIstr specifically, they advocated placing only the plant for pro-
11,otion ( of diesel engines in Naberezhnve Chelny, while locating the
111 in truck Plant in another city in Siberia and plants for various parts
aUi 1 components in other cities. A major argument for this approach
M. Troitskit, "Na novom etape," Novyi mir, no. 1 (1975), p. 177.
t We, ll ket.r, January 27, 1975. p. 11.
e Troitskil, op. cit.. p. 176.
Peter 'The Soviets at Kama River: Big Complex, Big Problems," Washington
PI, t. November 24, 1974, p. B-2: Donald Stingel. op. cit.
omne details of the KamAZ debate are given in Troltskll, op. cit, pp. 10*-171 and
I78-79.







was that the more dispersed ind ustry would d a ssist in provid in g eli)loy-
nment for t ie surplus labor existing in s sm Iall cit ies'. lI'hI "A Iieri-
can" approach was successfully opposed by the proponents of a single
complex in Nalberezhnlye Clieiv. AIpparently the victors wett 1,ri-
marily engineers froin tlhe autoinotive and construction ininistri(s.
They argued 'that the Naberezhnyve (helnv site was ideal froI I tihe
stand point of a vaila i it y of hydroelect ri power, water t I-a IIs ort ad
labor and because of its proximity to the major Soviet automotive
centers.
While Troitskiv does not ident ifv foreig-n technolo-v as a coIlli(lera-
tion in the debate, it is interest nir to consider the ad\a iitages of the
two variants from the standpoint of faci litatin g tile absorption a1d
diffusion of foreign technology. (onsidering the im portance of for-
e]g technology at KaiAZ, tliis may indeed ha x e been an elenient
of the debate that Troitskiy. a strong advocate of 1lhe victorious: vari-
ant, conveniently ignores. With the advalitag/es of hindsigl it a id in
View of the problems-. the project is experiencino, one is tempted to
conclude for several reasons that fthe Soviets made the wrong choice.
First, the construction and equipping of several smaller plants would
have been easier to manage. It seems likely that the Soviets (,ould(1 have
attracted Western firms to act a', general consultants- if not, they
probably would have had an easier time managing the sepa rate proj-
ects. In either case. there were models, particularly in the West, that
could have provided practical experience in truck production. Second,
Western technology is logically more suited for the dispersed in(lustrv
that exists in the West. Bv taking this into account. the proldens of
coordinating and blending Western and Soviet technological inputs
nig-ht have been minimized. Third, the less-concentr ,ted variant prob-
ably would have facilitated the diffusion of Kam AZ's mnodern tech-
nologv to other parts of the industry and the economy. Fourth, So-
viet needs might better have been served with something less than the
largest, latest, and most complex technologies. There is little evidence
that Soviet specialists agree with this assessmient, but it is interesting
that Troikskiv does not rule out the "cooperative," or dispersed, ap-
proach for future projects.
Of course, the KaiuAZ experience is not the only possible solution of such
problems. A detailed study of all of the factors of production in the conditions
of oir country allows us to decide in each concrete case which is more advan-
tageous-concentration or cooperation."
Troitskiv's discussion of such issues. which is part of a more general
dclate that has surfaced during the discussion of the Tenth Five-Year
plan and the Fifteenth-Year Plan. indicates that Soviet, officials are
continuing to act ivel v consider different variants of technology trans-
fer and domestic economic organization.
KamAZ diverges from the pattern established by Ford and FIAT
in another important way. Its products. the diesel engines and trucks,
were originally designed by Soviet engineers. without as-itanee from
the West. They are basically modifications of other Soviet vehicles, re-
designed from other parts of the Soviet automotive industry. Although
the Soviet officials were initially inclined to seek assistance in build-
ing a new engine through a licensing arrangement with a Western
N Ibid., p. 178.







firm, they decided that their own engineers at the Yaroslavl Engine
Plant could provide a better design. However, in 1972 they enlisted
the help of Renault to make improvements on the engines that had
been designed for KamAZ trucks.71
Soviet officials have placed high priority on developing managerial
techniques at KamAZ that will insure efficient production and main-
tenance of a rapid pace of technological progress. According to one
Soviet source, the managers of the. complex will use "the leading do-
mestic and foreign experience in organizing the management of the
big production complex." 72 The Soviets hope to achieve a new style
of nianagemnent, partially by organizing the complex in accordance
with the latest institutional changes in the Soviet economy and par-
tially by seeking assistance from the West. On the one hand, KamAZ
is organized as a production association, as are the Tol'iatti plant and
several other Soviet automotive enterprises. This form of manage-
ment will theoretically give KalnAZ managers a degree of indepen-
dence from the central ministry and also control over some of the
specialized enterprises that provide vital inputs to KamAZ. On the
other hand, the KamnAZ managers will be assisted by imports of for-
eign managerial techniques and hardware. Although direct Western
managerial assistance appears to be more limited at, KamAZ than %t
other Soviet projects, the Soviets do plan to import a computerized
management and automated control system from IBM. Moreover,
KamAZ may be a testing ground for new management techniques
that are imported through other channels, such as formal study of
Western management science.
TuE TRANSFER OF Vl'TERN TECHNOLOGY AND SOVIET ECO-NONIIC
CHANGE

The LSiaits on Chang(,
Technology transfer from the West to the Soviet Union may lead
to significant change in the Soviet economic system. Technology trans-
fer is broadly interpreted to include the use of Western systems of
attaining economic objectives as well as the iportation of products,
techniques, and knowledge associated with specific production goals.
The time for assessing change is not limited to the Fifteen-Year Plan
(1976-90) but extends to the turn of the century. Economic changes
may include modifications of both policies and institutions. While it
might be assumed that changes in the Soviet economic system leads
to changes in other I)arts of Soviet culture, these are outside the scope
of this chapter.73
The cha(e s induced by technology transfer may not be revolution-
ary. Some may suggest that the absorption of foreign technology leads
inevitably to the destruction of the old regime, after the lesson of the
Paris Commune, but we do not think this is true. Significant change,
in our view, might occur within a more flexible but ce-zentially Lenin-
ist system. Likewise, we do miot assume that economic, technological
t L. Bliakhman "Glavnvi vyigrvsh-vremia: zametki o problemakh uskorenlia nauchno-
tecknicheskogo progressa," Nova, no. 1 (1973), p. 173.
,I Edwards. op. cit., p. 309.
72 B. Mil'ner. "On the Organization of Management." Kommunist, no. 3 (1975), trans-
lated in Joint Publications Research Service 64452, April 1, 1975, p. 50.
73 See especially the introduction ; Chapters 1, 2, and 9. and the Afterword of this book.








transfer will act as an :krchinedes-like lever, forcing a. dialectic proc-
ess of change on the reluctant managers of the system.
Perhaps "in-systen nodernizers" (to use a term emphIyed by Mar-
shall Shulnman) may, within Party guidelines and inl their own insti-
tutional self-in terest, take actions that gradually lead to political and
institutioinal change. The motivations of the leaders (nachal) (nile )74
may lead them toward change in the interest of improved economic
performance and strengthening of the Party's role in the economy.
Even though trade in teemology is a small part of total output, it may
represent the critical margin necessary for attaining the priority eeo-
nonuical goals of the leadership.75 Even though Soviet leaders say,
and probably believe, that they are not engaged in a process leading to
significant change, this may be the unintended long-term result.
Interdependence and Modifled Syste ins 7Trater
The case studies of automotive technology transfer in the 1930s and
in the 1966-7.5 period indicate some movement in overall policy 'rom
independence to technological interdependence and, more specifically,
from the traditional Soviet model of technology transfer to a modified
systems approach. No longer is independence of the Western supplier
a primary criterion of success; companies such as FIAT and Swindell-
Dressler are encouraged to expect long-terni, expanding relations.
Moreover, the policy of the earlier period of producing a. Soviet plant
in the indigenous administrative setting has been challenged and modi-
fied. There appears to be increasing acceptance of the idea that im-
proved performance requires not only broad Western involvement
in the entire cycle of technology transfer but also new kinds of pro-
duction facilities that more fully adapt Western managerial and tech-
nical methods to Soviet conditions. The new kinds of facilities, in
turn, are not expected to fit into the existing Soviet administrative
hierarchies; new organizational forms, such as regional complexes
and production associations, are in order. Such changes in organiza-
tion suggest a shift in power and control from the established minis-
tries and region Party organizations to the central governmental and
Party organs-probably the State Planning Committee (Gosplan),
the Academy of Science Institutes, and the Central Committee Secre-
tariat departments. The modified systems approach, especially throutzh
joint management and joint production decisions, opens the Soviet
system to more Western influence.
The new organizational forms in Soviet industry may be unlike
both traditional Soviet and modern Western institutions. Just as
Western technology was combined with the Soviet conditions of the
1930s to produce new but uniquely Soviet institutions, the current in-
flux of Western technology may produce still another variant. Thus
the case study of the Soviet automotive industry suggests only that
7' The nacharniki are defined as a Soviet social group-"those in positions of authority
and management whose main work is the control of men." Z. Katz, "Insights from Emlgres
and Sociological Studies of the Soviet Economy," Soviet Economic Prospects for the See-
*entie8, op cit., pp. 101-102.
75 A multiplier effect of about three is suggested in several recent studies, Including the
econometric assessments of Donald Green and Herbert Levine, "Macro Econometric Evi-
dence of the Value of Machinery Imports to the Soviet Union," In S USSR Technological
lnteroction, ed. J. Thomas (Washington : National Science Foundation. forthcoming).
Philip Hanson, "The Impact of Western Technology: A Case Study of the Soviet Mineral
Fertilizer Industry" In East European Integration ed. Paul Marer and .Montias (Blooming-
'ton. Ind. : University of Indiana Press, forthcoming).







traditional methods are perceived by Soviet leaders as inadequate and
in need of change. Some of the broad outlines of that change are
emerging, and the absorption of Western technology appears to be
influencing the direction of change.
In the short run the changes resulting from the process of economic
interdependence are likely to be selective and limited. Even in the
h(," run the Party and the government may succeed in insulating
key sectors of change from the system as a whole. Among the key
policy problemin that require accommodation to the impact of West-
ern tecliiology are resource allocation priorities/ the role of the state
trading monopoly, and the econoilic information control system.
In order to effectively absorb Western automotive production tech-
nology it may be necessary to give higher priority to a domestic supply
of hig quality goods, persomiel. and research. More important to the
attainnei. t of the presumed leadership objective of developing a mod-
ern aitoimotive transport system would be extensive investment in an
auitoimotive system infrastructure, such as roads and repair facilities.
The effectiveness of Western technology transfer to the Soviet Union
will depend not only on the systems approach to absorbing the tech-
nology but on the development within the Soviet Union of an auto-
motive transport system to effectively utilize modern trucks and pas-
senger cars to provide maxiniun economic utility. The discussion of
the "Auto BAM" -the transcontinental highway from Brest to
Vladivostok, a discussion that was quietly, even secretly, begun in
1967, is illustrative of this larger resource. commitment.7
Resource allocation policy is also likely to be inf-iienced by balance-
of-payments eonsidlerations, particularly tle need to pay for the West-
ecu technology. In view of the difficulty experienced by the Soviet
Union in maintaining its hard currency balance of payments. Soviet
planners are confronted by hard choices. For example, they will have
to apportion the expanded output of industrial cooperation ventures
between domestic claimants and foreign markets. Will the export pas-
senger car from the Tol'iatti plant, the Lada, be given priority in
quality and delivery schedule over the domestic product, the Zhiguli ?
We already note aggressive European sales efforts for the Lada. A
future variant of such preference for foreign over domestic markets
might be the establishment of a new plant or a separate line at
Tol'iatti that would be designed to meet the foreign market's special
demands for high-quality products and timely delivery. For example,
the Soviets may be forced to imitate the Japanese auto producers, who
have made special export arrangements to meet U.S. environmental
standards. Such attention to the requirements of the export market
miglit be a step toward establishing export branches of Soviet industry
tiat, ini-ht even rival the Ministry of Defense as a claimant for high-
quality inputs.
The percentage of total economic activity represented by Western
trade kM[n in1st vial cooperat ion is lkely to be a small but critical mar-
2ui. Much of tlie i-ew investment in the upcoming plans will be in
Siberian raw materials, transportation, and industrial development.
Attainment of the various modernization objectives will be keyed to
Siberia and to Western technology transfer-"the biggest programs
70 See especially Hardt, Soviet Commercial Relation8 and Political Change, op. cit.
7";~~~~~~~~ 121/ l('t*II LiC llel [ iO







in the history of the U.S.S.R." "S A large portion of the new inV4i-t-
nient for the Tenth Five Year MI an and the Coi current Fifteen-Yc.r
Plan will be in S iberian i nodernizat ion proj ects. T1 tinle for conll )!-
tion, the efficiency, and indeed the feasibi lit v of man v of tliese projects
are likely to depend on the elfectiveness of the W estern technology
bridge and on tIhe priority given to related Soviet, supply plaiis.
One important institutional change that may. occur is roson S I
the dominance by the Ministry of Foreitn Trade over Soviet foreila
economic relations. A ma jor purpose of the State Tradin, M onopo!Y
has been to insulate the Soviet donlestic econolly from the outside iII-
fluence of powerful capitalist nations aid to main ain the influence
of the domestic Soviet enterprises and ministries on foreign coienie-
cial policy. This concel)t is now )eing eroded or modified. For exaul .
the Ministry of Foreian Trade am its subordinate forei t L i,
organizations and related agencies io lon ger Inonopolize colunhrr-
cial negotiations with foreign firms. At the center, the State Plannilmu
Committee (Gosplan) has begun to play an important role. Likewis-.
the ministries of key industries such as metallurgy, chemicals. -as. an I
oil increasingly have direct contact with Western firms. The State
Committee on Science and Technoloiry, especially through I)zherinal
M. Gvishiani, its ubiquitous deputy chairman, has inadle agreements
on technology exchanges that narrow the scope or infringe on the mis-
sion of the Ministry of Foreign Trade's monopoly. To be sure, the
Ministry of Foreign Trade has resisted a dilution of its power and
has reorganized to adjust to changing conditions. However, the sys-
tem of foreign trade administration is in flux.79
Payments in kind out of subsequent output by the industrial coopc r-
ation ventures have been modified. Concurrent rather than sequential
payments are now possible. Now ministry lines are crossed in repay-
mnent. Current or concurrent payment is possible, anid either hard cur-
rency or product may be the form of payment. Thus the dominance
of the State Bank (Gosbank) and the Foreign Trade Bank (Vnesh-
toargbank) has also been eroded. The direct quota control of the So-
viet state trading monopoly has limited Soviet end users from par-
ticipating in the choice of firms with cooperative advantage and
otherwise profiting from direct contact. It has also left the Western
firms in a more restricted position than have Common Market-type
quotas.80
Another consequence of the new approach to technology imports
may be modification in economic information control systems. ThV
exchange of economic information has become part of the bilateral,
government -to-governiment exchange prograin. The exchange of agri-
cultural data, such as current and future crop forecasts, was a subject
of summit agreements with IVashington in June 1973. Data related
to creditworthiness. such as hard currency ii)debtedness and zold stocks.
have been the subject of considerable' discussion. Successive prezi-
dents of the V.S. Export-Import Bank have st rested the nPee imv
for Soviet disclosure of the information normal to a determiicttio'l
of creditworthiness. IHowever, in spite of numerous discussions, no
1 Mil'ner, op. cit.
'79 L. Brainar. "Soviet Forei n Trade Planning", in Soriet reonomz in a New Perspe'-
r c, (Washington. DC.: Government Printing Office, 1976). pp. 695-70q.
'0 'ee Ole'-' Boguol .vd's discus.on paper of G. Ilaberler and John P. lairdt "lnte rat io,
bv M',rl ,t F)r-os aind Through Planning-" at World Cragress of International Econni'
Asso(.iation. Budapest, Hungary, August 19-24, 1974.







significant data has been provided. The formal agreement between
the Export-hniport Bank and the Foreign Trade Bank of April 1973
apparently did not require disclosure. Moreover, the formal and
soleni agreement to provide agricultural data did not lead to dis-
closure, which makes it seem unlikely that there will be general dis-
closure of the more sensitive monetary data.
The reasons for lack of general disclosure may be traced to several
sources: the continued legal barrier to disclosure of a wide range of
economic data (the state secrecy laws) ; the lingering Soviet view that
foreign knowledge of the inner workings of the Soviet economy, such as
information on stocks of grain, petroleum, and gold, is intelligence
information that might reveal strengths and vulnerability to a puta-
tive enemny: the apparent view of the leadership that availability of
information and statistics represent mechanisms of control within the
Soviet society: and the habit of secrecy. V. N. Starovskii, former head
of the Central Statistical Agency, seemed to treat economic data. more
as a treasure to be guarded and stored than as a common property to
be freely circulated. If he is truly a man of the Stalinist past, his succes-
sor may take a less restrictive view of data disclosure1
Despite the Soviet penchant for secrecy, there have been marked
changes or exceptions made for some foreign commercial arrange-
ments. The economic and technological ties to the West that have been
established in the 1970s require a more flexible attitude toward dis-
closure of economic information. For example, the Soviet desire to
obtain equal and nondiscriminatory prices and credit terms may lead
to more responsiveness to Western pressures for more specific "infor-
mnation. On-site exploration of the West Siberian gas fields by Western
firms was permitted, to allow them to make an objective assessment
of the Siberian gas reserves.
The modified systems approach to technology transfer provides
much more access to the Soviet economy. As Western companies be-
come involved in the construction and design of projects, the supply of
plants, and the distribution of products, the specific "need-to-know"
within those particular branches of the economy increases, and as the
FIAT relationship has become a long-term one, and it is likely that
Italian specialists in Soviet auto production have become more knowl-
edgeable about domestic Soviet economic matters than the general
sorecy system usually proscribes. Moreover, companies such as Me-
Killsey Ma cnagement Consultants and Control Data Corporation
which' provide advice and guidance on Western management tech-
niques and computer applications, are likely to be given greater access
to Soviet economic data. Perhaps management and computer consul-
tation will provide a better basis for interpreting and understanding
Soviet economic practices than the traditional sources of information
and economic data. The intergovernmental exchange programs are
another source of data exchange and disclosure. The information ex-
changed with Western colleagues on research and development in the
'SSR may be greater in many cases than that exchanged among re-
sel) rch institutes within the USSR.
The implication of these foreign disclosures through specific pri-
vate commercial and governmental channels is that the traditional
81 V. r. TrPmnl nnd John P. Hardt, ed. Soviet Economic Stati8tic8 (Durham: Duke Uni-
versity Press, 1972).








general system of secrecy is being breached, however selectively and
modestly. Certainly the Western corporations protecting industrial
secrets or information that provide market advatage may be closed-
mouthed and discrete ; however, the specific disclosures are made large-
lv in order to obtain more competitive terms and more efficient op-
e'rations. The latter criteria for wider disclosure might become per-
suasive within the Soviet Union, especially as the old guard passes
front the scene.

Modification of the Adrmiitbdration of Soiet Enterprises With
Weltcr T eh iological Co nncetioas
Perhaps coincidentally with these expanding Western ties, some
economic sectors appear to be exploring new administrative forms or
variants of the old. What seems to be involved is a removal of these
Western-connected enterprises from the traditional bureaucracy and
relaxation of the old ministerial ties and of the control by the local
Party organizations. The establishment of regional complexes and
production associations is a part of this apparent new trend.
The regional complexes, such as the Tyumen petroleum complex, the
West Siberian gas (levelopnent, and the Baikal-Amur railroad de-
velopment, appear to require considerable 'estern economic involve-
ment and seem to be moving away from traditional lines of control.
Referring to the regional complexes, a Soviet writer noted the
following:
They require a new approach to the creation of an organizational management
mechanism, for their effective implementation requires the specific coordination
of thousands of organizations and establishments. Such programs are not in-
cluded within the limits of individual ministries and departments or territorial
administrative organs: their management, i.e., the organization, coordination,
and control of the joint activities of a large number of scattered enterprises and
establishments, could be effective and rational only on the basis of a complex
approach.'
The large regional complexes tend to upgrade the role of the cen-
tral Party and governmental organs-the departments (otdel) of the
CPSU Secretariat of the Central Committee, the Gosplan, and the
Council of Ministers. More direct involvement of important minis-
tries and Party leaders is characteristic of these projects. For example,
Western corporate leaders, have found that discussions with Brezhnev,
Kosygin, and important ministers appear to be essential links in nego-
tiation about industrial cooperation ventures. Moreover, the heads
of departments in the Central Committee secretariats, such as Victor
Bushuvev in chemicals, Vasilv Frolov in machine building, Fedor
Mochalin in light and food industry, and Fedor Kulakov in agricul-
ture, may become more important if the roles of subordinate ministries
and regional branches of the Party decrease. It is not surprising" to find
the latter officials arguing for the traditional bureaucratic approach
of the past.83
Lev Vaziliev, general director of the Kama River truck complex,
is reported to have special and high government and Party access. A
'Western writer commenting on Vasilievs unique position noted the
following:
2Mil'nor. op. cit.
63 Troi*skii, op. cit.
36-144-79- T







What is important is that the Russians seem finally to have got the point that
industrial efficiency requires that a manager be given operating authority com-
mensurate with his responsibilities. In the West this is traditional; in the U.S.S.R.
it, is almost revolutionary.8
The role of the local Party in industrial management has been the
subject of considerable debate in recent years. According to Darrell P.
Hammer, the Leningrad view, expressed by G. Roinanov while he was
Leningrad Party Secretary, was that the economic role of the Party
organization should be enhanced. This would be accomplished by more
economic training of the younger Party leaders. Romanov's call for
more economic training is concerned with the economics of man-
agement, rather than with engineering skills. le is said to have had
more support among local and regional Party secretaries than among
the central Party officials, who have less concern with emulating West-
ern economic practices. In this sense RIomanov's new emphasis on
managerial over traditional engineering favors decentralized reform.
That is, lie advocates better-trained industrial managers and man-
agement-oriented local branches of the Party, operating within the
traditional bureaucracy.85
The Party has some difficult problems in deciding whether the new
Western-oriente d complexes are to be given some automony from tra-
ditional ministerial and local Party direction and controlled more
by the central government and Party organs. The training of local
managers and Party officials, from the shop leaders up, would prob-
ably involve retraining several million people. Converting those
trained as engineers, over half of whom are probably over 50 years old,
into effective managers by iodern management science criteria would
be a forniidable task.A Although the Romanov view seems to have
merit, the short-run solution of removing the large Western-assisted
complexes such as Toliatti and KamAZ from the control of local
branches of the Party and traditional ministerial hierarchy seems
to be more effective and expedient.
A third variant to tei centralized approach, the decentralized up-
grading of Party and managers, is a mixture. Some ministers such
as chemicals, have been strengthened-a "head" ministry approach-
and some have been weakened, as in the centralization of the automo-
tive in(lustries. This would be a blend of the two variants: some more
regional power to complexes, some more central control by the Central
Committee.
To date the debates on organization and control are waged within
the parameters of Soviet party guidelines acceptable to the leadership
The dominant position of the Party is not in question. The Leninist
concept of democratic centralism is kept intact. IWhether progressive
forms of Western contacts and technology transfer can be contained
within the traditional Party and governmental bureauratic frame-
works remains to be seen. The ripple effect of modest institutional
change may lead to more profound substantive change, especially in
the long run.
A Ilprhert E. Meyer, "A Plant That Could Change the Shape of the Soviet Industry," For-
tune, November 1974. p. 155 ; see John P. Hardt and T. Frankel, "The Industrial Managers,"
in ods. IT. Gordon Skilling and Franklyn Griffiths. Interest Groups in Soviet Politics
(Princeton : Princeton University Press, 1971) pp. 171-208.
S Ronianov was elevnfpd to tthe PolIitirt, in 19 7t. 1Darrell P. Hammer, "Brezhnev and
the Communist Party." Sorfrt Union Vol. II, Part 1, 1975, P). 8-12.
8 Hardt and Frankel, op. cit., pp. 198-208.
















Chapter 6. ECONOMIC DL 1V)ELOPMENT AND MODERNIZA-
TION IN CONTEMPORARY CtI NA: TIIE ATTEMPT TO
LIMIT DEPENDENCE ON TIE TRANSFERt OF MODERN
INDUSTRIAL TECHNOLOGY FROM ABROAD AN) To
CONTROL ITS CORRUPTION OF TIE MAOIST SOCIAL
REVOLUTION*

By ROBERT F. DERNBERGER

INTRODUCTION

The Problema

Economic development is a primary goal of all societiCs, both coiln-
munist and noncommunist. regardless of the wide variety of cultural
values, patterns of social behavior, ideological objectives and con-
straints, political and administrative institutional organilzatIons, and
even specific economic priorities to be found in these societies, the
results of empirical research and theoretical reasoning by economists
indicate that the accumulation and effective implementation of tech-
nological innovations is perhaps the most important and difficult of
the necessary conditions for any successful econolie development
program. By definition, the developed countries are the repositories
of advanced technology. The developing countries must rely to a sig-
nificant extent on borrowing this technology in their efforts to achieve
economic development.1 Simon Kuznets states the argument clearly
as follows:

Robert F. Dernberger, "Economic Development and Modernization in Contemporar5
China The Attempt to Limit Dependence on the Transfer of Modern Industrial Technology
From Abroad and to Control its Corruption of the Maoist Social Revolution." Technology
and Communist Culture: The Socio-Cultural Impact of Technology Under Socialism. Ed.
Frederic J. Fleron, Jr. 1977 Praeger Publishers, A division ot Holt, Rinehart and Win-
ston, CBS, Inc. pp. 224-264. Reprinted by permission of Holt, Rinehart and Winston/
CBS, Inc.
Due to space limitations and the comments of readers, this is a significantly revised
and reduced version of the research paper. "The Resurgence of 'Chung-h seuh wei-ti. tIsi-
bsueh wei-yung' (Chinese learning for the fundamental principles, Western learning for
practical application) in Contemporary China: The Transfer of Technology to the PRC,"
which I presented to the Conference on Technology and Communist culture held at Bel-
lagto, Italy, in August 1975. I wish to thank the participants in that conference, espe-
cially the discussants of my paper, for their many helpful comments.
All of the data cited in this chapter, unless otherwise noted, are taken from a 29-page
statistical appendix prepared for the version of the paper presented at Bellagio. Unfor-
tunately, limits of space do not permit the inclusion of the statistical appendix in this
article. That statistical appendix, however, is used as the basis of a statistical analysis of
China's machinery and equipment trade that is in preparation. Those readers who are in-
terested in obtaining a copy of this appendix should write to the author.
China is a most unique example of this flow of technology from the "advanced" to the
"backward" societies. At one point in history, China was the most advanced or developed
nation in the world and Europeans -borrowed- from the Chinese treasure chest of inven-
tions. After contributing to the world's stock of technology in the premodern period, how-
ever, the Chinese entered the modern period as an underdeveloped country without a mod-
ern technological base. Borrowing R. H. Taw, ney's excellent way of capturing this unique
phenomenon, China's peasants "ploughed with iron when Europe used wood, and continued
to plough with it when Europe used steel." R. I. Tawney, Land and Labor in ('J ma
(Boston: Beacon Press, 1966), p. 11.









No matter where these teelndogical and social innovations (i.e., those inno-
vations which are the source of the "high rate of aggregate increase and of the
high rate of structural shifts tht characterize modern econoinies") emerge-and
they are largely the product of the developing countries- thie economic growth
of amy nation depends upon their adoption. In that sense, whatever the national
affiliation of resources used, any single nation's economic growth has its base
somewhere outside its boundaries."
Itistorical1%v this intercultural transfer of tecliolofv, a necessary
Compel ,nt of iaodernization for the less-developed countries. has in-
vOlve(l sCrious ; er ihios ci'ects on the borrowing f country's social and
cul urail icssn. IoI.How the C omnmnist countries have coped with this
prol1 em ar d their success in doing so is a major thwme of this volume.
Al h(o 1 setiosl V concerned with tihe historical tendency for bor-
r0'wedci t-,cnoi)lv to brin" a long" with it the ,erms of undesirable social
ch :ntre. t Chline te CoMMuniits arvue that nationall science and tech-
nolo",y beer no (lqss characteristi's": tlat is, whatever its oriain, for-
ei.n te1Imoloszy can be useful in China's atteninpt to modernize, and
it should! )e I)possihle to sanitize the liorrowed technology so it does not
lead to ttuilesired changes in the oorrowino" country's society.3 The
teal da(, r is to be found in the unquestioned and slavish adoption
of nod,'ru lVeseirn t echnolog y; the process of defusing its harmful
efcc s lies in its care ful adaptation to fit China's needs and environ-
ment. co' words are as follows:
(-'hio.1 his suffered a great de'l from the mechanical absorption of foreign
material .... We should assiinlate whatever is useful to us today not only from
hile present- Jy socialist and new-democratic cultures but also from the earlier
cuilture-s of other nations..... We should not gulp any of this foregn material
down uncritically, but nuiiist treat it as we do our food-first cihewing it, then
subniittinfg it to the workings of the stomach and intestines with their juices
and secretions, and separating it into nutriment to be absorbed and waste matter
to be dIsco rded.
The Chinese have encountered Fevere prol)Iems in their attempt to
"dlivest foteisn technologv and history tells us what previous at-
tempts 1o separate the ood from the )ad in this manner have often
lead to the demise or the would-1)e gourmets. In an alle--orical arau-
ment remarl:edlv similar to M\aos, but much less optimistic, Arnold J.
Toynlee concldes as follows from his detailed study of contacts be-
tween civili zations:
The truth is tlht. if once the besieged have permitted even one isolated mem-
ber of fh besie'gers' storming column to force his way inside their enceinte. their
only remaining chance of saving their fortress from ultimately falling is to take
the intruder prisoner before any of his eagerly following comrades-in-arms have
had time to rejoin and reinforce the audacious piorneer. Al intrusive alien eil-
ti--element cannot be purged of its dangerous capacity for attracting to itself
other clemonts, of the same provenance, with which it was associated in its
original cultural setting. The rash recipient's only chance of demagnetizing his
formidible ae-pisition is to metabolize and a ssimulate it to a degree at which
it becomes alnal hle to being worked into his native cultural pattern as an
el:riAqmt and not a dissolvent of the prevailing harmony. If the intrusive alien
element Sueeeds in defeating the operation of its host's digestive system by

Simon Kznot's. lModern r'onon to Gro(tt. ot, f tructetrC, and Spread (New Haven
'nI i ondon : Yale l'nivorsity Press. 1966), p. 2R7.
1The phrase united in the text comes from a serious discussion of science nnd teeh-
oilny contained in voral a rttieso published in i ',q Ch'i (ied Fla ) in October and
Novomuhor of 1)(12. for (Hr p rposes hore. an even more anmropriate quote from these
rtiii i-. "Thwu, the point is not whetbicr we roed or Oo not need to learn zood things
from fr,eruon (t11ries. 11t 11ow to learn them." Minug Ch'i, no. 20 (Oct. 16, 1962), p. 4.
4 Z Ierle,7 Works of Atlo Tse-tunq (19(7 edition), Vol. 2, p. 380.