Gorbachev's allocative choices

de Charles Wolf

This report formulates estimates of competing resource claims facing the Soviet leadership and develops alternative combinations of allocations to these competing sectors. It highlights the conflicting allocative choices and policy options confronting the Soviet leaders and the severity of the resource constraints they face in approaching these choices. The authors evaluate the implications of these choices with respect to reductions in Soviet military spending, arms control, foreign capital inflows, the production of consumer goods by the defense industry, subventions to the external Soviet empire, and prospects for fundamental economic reform. Among the inferences they draw from the policy options facing the Soviet leadership are (1) consumption, investment, and military alternatives would exceed the ruble estimates of Soviet GNP in 1995 by 6 percent to 40 percent of Soviet GNP; (2) pressures to reduce Soviet spending are and will be intense, but even deeper military spending cuts than those presented in the policy alternatives achieve only modest goals for the nonmilitary sector; (3) the Soviet Union will be strongly motivated to seek types of arms control that involve real force reductions and resource savings in operating and investment costs; and (4) Soviet interest in substantial external financing to fund commodity imports may be very high over the next decade.