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Estimating the Size of the Soviet Economy Summary of a Meeting Michael Alexcev and Lee Walker, editors Commission on Behavioral and Social Sciences and Education Office of International Affairs National Research Council National Academy Press Washington, D.C. 1991

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NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competencies and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to procedures approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Frank Press is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Robert M. White is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Samuel O. Thier is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Frank Press and Dr. Robert M. White are chairman and vice chairman, respectively, of the National Research Council. Library of Congress Catalog Card No. 91-061282 Additional copies of this report are available from: Commission on Behavioral and Social Sciences and Education National Research Council 2101 Constitution Avenue N.W. Washington, D.C. 20418 Printed in the United States of America

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Participants LAWRENCE KLEIN, Chair, Department of Economics, University of Pennsylvania VLADIMIR TREML, Consultant, Department of Economics, Duke University MICHAEL ALEXEEV, Rapporteur, Department of Economics, George Mason University ABRAHAM BECKER, Rand Corporation, Santa Monica, California ABRAM BERGSON, Department of Economics, Harvard University IGOR BIRMAN, Soviet economic analyst, Silver Spring, Maryland ROBERT CAMPBELL, Department of Economics, Indiana University RICHARD ERICSON, Department of Economics, Columbia University GREGORY GROSSMAN, Department of Economics, University of California, Berkeley FRANKLYN HOLZMAN, Department of Economics, Tufts University RICHARD JUDY, Hudson Institute, Indianapolis, Indiana RICHARD KAUFMAN, Joint Economic Committee, U.S. Congress VLADIMIR KONTOROVICH, Department of Economics, Haverford College BARRY KOSTINSKY, Bureau of the Census, U.S. Department of Commerce WILLIAM LEE, Industrial Resources and Production Division, Defense Intelligence Agency NORBERT MICHAUD, Economic Affairs Section, Defense Intelligence Agency JAMES NOREN, Office of Soviet Analysis, Central Intelligence Agency GUR OFER, Department of Economics, Hebrew University GERTRUDE SCHROEDER, Department of Economics, University of Virginia DMITRI STEINBERG, Intelligent Decision Systems, Berkeley, California . . .

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COMMISSION ON BEHAVIORAL AND SOCIAL SCIENCES AND EDUCATION ROBERT McC. ADAMS (Chair), Smithsonian Institution, Washington, D.C. ANN L. BROWN, University of California, Berkeley DAVID K COHEN, Michigan State University PHILIP E. CONVERSE, Center for Advanced Study in the Behavioral Sciences, Stanford, Calif. ARTHUR S. GOLDBERGER, University of Wisconsin ROBERT M. HAWSER, University of Wisconsin JOSEPH B. KADANE, Carnegie Mellon University EDWARD O. LAUMANN, University of Chicago ALVIN M. LIBERMAN, Haskins Laboratories, New Haven, Conn. STEWART MACAULAY, University of Wisconsin Law School DANIEL McFADDEN, Massachusetts Institute of Technology DAVID MECHANIC, Rutgers University WILLIAM ~ MORRILL, Mathtech, Inc., Princeton, N.J. FRANKLIN D. RAINES, Lazard Freres, New York W. RICHARD SCOTT, Stanford University JEROME E. SINGER, Uniformed Services University of the Health Sciences JOHN ~ SWETS, BEN Laboratories Incorporated, Cambridge, Mass. RICHARD F. THOMPSON, University of Southern California DAVID A. WISE, Harvard University and National Bureau of Economic Research, Cambridge, Mass. OFFICE OF INTERNATIONAL AFFAIRS EXECUTIVE COMMITTEE JAMES WYNGAARDEN (Chair), Foreign Secretary, National Academy of Sciences GERALD DINNEEN, Foreign Secretary, National Academy of _ . . engineering GLENN SCHWEITZER, Acting Executive Director, Office of International Affairs 1V

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Foreword At the request of Representative Lee Hamilton, Chair of the Joint Economic Committee and Senator Jeff Bingaman, Chair of the Senate Subcommittee on Technology and National Security, the National Research Council (NRC) hosted a meeting on estimating the size of the Soviet economy in the fall of 1990. The participants were asked to identify the methodological factors that had produced radically divergent estimates, to place the controversy in the context of what is known and knowable about the Soviet economy, to advise U.S government agencies concerning the relative reliability of these methodologies, and to assist them in better understanding the strengths and weaknesses of the current estimating methodology. The NRC, under the aegis of the Commission on Behavioral and Social Sciences and Education and the Office of International Affairs, convened a panel of experts chaired by Lawrence Klein that included specialists from academia, independent research institutions and government agencies. These experts met in a series of plenary sessions and small workshops over a 2-day period and presented their findings to representatives of the larger specialist community on the final afternoon. Despite the severe time constraint and the broad range of opinion repre- sented on the panel, the participants made significant strides at this meeting in terms of defining the controversy, determining the central factors at issue in the dispute, gauging the impact of these factors on the estimates, and identifying areas where methodological improvements were needed. The NRC considers that a summary of these discussions will be of value to members of the government, specialists in the field, and those with broad interests in the fields of Soviet and comparative economics. We express our appreciation to Vladimir Treml, who served as the principal consultant on the project, Michael Alexeev, who prepared the report, and Lee Walker, who organized the meeting and coedited the proceedings. Robert McC. Adams, Chair Commission on Behavioral and Social Sciences and Education v

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Contents MEETING SESSIONS Introduction, 1 Session I: Theoretical Foundations of Current Methodology, 1 Session II: An Analysis of the Data Used in Estimating the Size of the Soviet Economy, 4 Session III: Comparison and Critique of Alternative Methods of Estimating the Size of the Soviet Economy, 7 MEETING WORKSHOPS Workshop I: The Size of the Military-Industrial Sector, 13 Workshop II: Consumption and Services, 15 Workshop III: The Second Economy, 17 PLENARY SESSION CONCLUSION GLOSSARY . . V11 1 13 20 21 22

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