oversight

Comparison of Military Research and Development Expenditures of the United States and the Soviet Union

Published by the Government Accountability Office on 1971-07-23.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

REPORT TO THE SUBCOMMITTEE
ON RESEARCH      AND DEVELOPMENT
COMMITTEE     ON ARMED     SERVICES
UNITED    STATES    SENATE            /fl &l$j-Jy
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                                                   LM095556




Comparison Of Military Researc
And Development Expenditures
The United States And
The Soviet Union            B-772553




Department of Defense




BY THE COMPTROLLER    GENERAL
OF THE UNITED  STATES
                                COMPTROLLER         GENERAL      OF      THE      UNiTED    SATES
                                                  WASHINGTON.     B.C.         20548




         Dear Mr.      Chairman:                     ‘*, -./ .
 k
                  As requested in your letter of April 1, 1971, the General Accounting
         Office has evaluated the data and the methodology      on which the Department
     !   of Defense (DOD) based its conclusion that Soviet Union expenditures       for
I-       military    research and development   (R&D) are abaut $10 billion annually
         compared with United States expenditures      of about $7 billion.

                As you have recognized, this is a very complex matter involving
         many abstract issues.     Furthermore   the data available for such a study
         are very limited.    According   to DOD officials, their conclusion regard-
         ing increased Soviet Union R&D funding was based primarily         on intelli-
         gence reports.    With one exception, these reports were not available to
         US.



                  Although our study was necessarily       restricted   in scope, we have
         covered      the two areas mentioned on page 5 of your request; namely (1)
         identification     of the rough magnitude of overall U.S. expenditures      for
         defense-related       R&D and (2) determination     of the data and methodology
         used by DOD in calculating       comparable     Soviet Union expenditures.

               Although      we did not have time                to obtain DODfs formal                    comments,
         we did discuss      the report informally                with DOD officials.

         PROBLEM         OF COMPARABILITY

               Our limited study indicates that any comparison  of United States
         and Soviet Union R&D efforts is complicated  by such factors as:

                   --The sparseness           of published       information                 on the Soviet Union
                      budget.

                   --The inability  to accept the limited                         published         Soviet Union bud-
                      get data at face value.

                   --The inclusion in the Soviet Union budget of outlays for activi-
                      ties financed in the United States largely by the private sector
                      and State and local governments.

                                                                                       70076s
                                                                                             @dptJg&               _-: .e..,
                                        50TH      ANNIVERSARY                    1921-     1971
    B-172553



           --The   uncertainties   in converting   rubles   to dollars.

          --The differences in methods of performance,             especially   in the use
             of manpower and equipment.

          - -The differences in innovative approack between a centrally
             planned economy and a competitive   market economy.

          --The reportedly      inferior   facilities    and equipment of Soviet Union
             scientists (with the likely exception of some space and military
             research facilities),     especially     the lack of computers for R&D.

    U.S. DEFENSE-RELATED           R&D EXPENDITURES

           In the past several years, DOD officials     most often have mentioned
    defense-sponsored      R&D as being in the area of $7 billion,   As long as
    the figure is not more precise, it can represent      (1) the RDT&E (research,
    develo*ent,     test, and evaluation) appropriation   in DOD”s budget request,
     (2) DOD’s part of the R&D program contained in the Special Analyses sec-
    tion of the Budget of the United States, or (3) DOD’s R&D program as pub-
    lished in National Science Foundation reports, which includes RDT8zE
    appropriations    plxxs some support received by R&D activities    from other
    appropriations.

             The expenditnre   figure of $7 billion used by DOD in its recent
    statement included> in addition to DOD’s RDT&E expenditures,          costs for
    military    atomic energy.     The amount in current dollars was close to
    $8 billion but was converted to 1968 dollars for comparison       with Soviet
    Union expenditures.

           We found in our study that expenditures     for defense-related   R&D
    in the United States were higher than any of the figures recorded in the
    above-named      sources,   Although we were unable to determine the exact
L


    amount, we believe that the additional effort exceeds $1 billion.      There
    are two principal     areas in which these defense-related   R&D costs are
    incurred:    (1) expenditures    are made by DQD that are not recorded as
    part of its RDT &E appropriations      or its R&D program and (2) private

                                             2
B-l    72553




industry finances R&D ($I 0 billion to $11 billion annually), some of which
is related to defense. These two areas are discussed in further detail sub-
s equently.

        Because of the nature of R&D there is no generally accepted defi-
nition of the activities  which constitute R&D, especially    when it comes to
defining the point at which development     ends and production begins,    DOD
believes that many of the so-called unrecorded R&D costs fall within the
“gray areas’* which border on the line between development        and produc-
tion and that there is a further definition problem involved in determining
the part of industry’s   R&D efforts that is defense related.

       DOD believes also that designation of these two types of costs as
defense-related     R&D costs would increase the amount recorded as US,
defense-related     R&D expenditures by about 15 percent--20      percent at
the most--and     that these add-on costs become important      only if the Soviet
Union is handling its similar     expenditures in a different manner*     DOD
states that its comparisons    were intended to make the Soviet Union
RDT&E estimates functionally       comparable   to those of the United States
and that such costs in the Soviet Union were outside the budget for its
RDT&E.     In our study we were unable to determine the handling of such
expenditures    in the Soviet Union budget.

Some   DOD R&D-related     expenditures
not recorded as R&D

        DOD*s accounting system discloses some costs of RDT&E activi-
ties funded from appropriations  for military    personnel and military    con-
struction and from other appropriations.      These costs are included in
National Science Foundation reports on R&D. Other amounts relating
to R&D however, are not funded with RDT&E appropriations         or other-
wise recorded as R&D.

       1. As explained in our report to the Congress (?*Allowances for
Independent Research and Development       Costs in Negotiated Contracts--
Issues and Alternatives,   3‘ B-164912, February  16, 1970), DODVB share
of contractorst   costs for independent research and development    (IR&D)

                                          3
B-172553




(including other independent technical effort, such as bid and proposal) is
generally absorbed as overhead on contracts.         Such contracts are funded
from appropriations    for procurement,    RDT&E, and to some extent opera-
tions and maintenance.     On the basis of our knowledge of the funding of
defense contracts,   we estimate that 20 percent of such lR&D costs were
funded from RDT &E appropriations,        Therefore,     using Defense Contract
Audit Agency reports for 1970, we calculate that about 80 percent of such
cost s--more   than $550 million --represents     additional defense R&D costs
not included in RDT&E or otherwise recorded          as R&D.

      DOD informed us that it had included about $300 million for IR&D
in computing the $7 billion of United States defense-related R&D costs
for comparison  with the Soviet Union R&D expenditures.

       2. Certain expenditures,   related to development of weapons systems
and components, are funded from other than RDT&E appropriations         and          G;
are not recorded by DOD as R&D costs. These include such areas as
“product improvement”      or ‘komponent   improvement,”  “major modifica-
tion,” and “advanced production engineering.”

       DOD does not maintain separate records          of product improvement
or component    improvement      costs financed by the procurement       or opera-
tions and maintenance appropriations.          At our request DOD estimated
that R&D costs for programs        in this gray area amounted roughly to
$100 million  in procurement      appropriations   for fiscal year 1972. We
believe that the amount may be higher, because DOD has planned to ap-
prove $113 million     in calendar year 1971 and $126 million in calendar
year 1972 for aircraft     engines, a single-component       improvement    pro-
gram.

       DOD informed us that Soviet Union expenditures     for product im-
provement were made by Soviet Union production enterprises        and were
not included in estimates   of the Soviet Union RDT&E budget. We were
unable to corroborate   this information  and therefore are unable to com-
ment on the statement.

        DOD   had not made a study of the engineering       and testing costs
funded from    procurement    appropriations    for major   modifications  of

                                          4
 B- 172553




weapons       systems     and consequently      did not provide       us with an estimate
of such amount.         Our limited      review    indicated  that modification        pro-
grams      involved    substantial     costs and, when implemented            as modifica-
tions    to production      contracts,    were not funded     from      RDT &E appropri-
at ions.     The extent     to which    such modifications       involve    R&D efforts     is
not known

         DOD considered       advanced       production       engineering      as another      gray
 area   and estimated     that such R&D effort            involved      $50 million   financed
from     1972 procurement       appropriations.

         3. Expenses      of R&D management        and administrative      organizations
at DOD departmental          headquarters   levels    were not financed      from     RDT&E
appropriations       and were not recorded       by DOD as R&D program             costs,
DOD estimated        these   costs at $42.3 million     for fiscal    year  1972.

R&D     financed    by private     industry

        Inasmuch       as all activities         in the Soviet      Union   are funded      and con-
trolled   by the Soviet        Union Government,            we believe     that it is necessary
to recognize      that a part of all United            States    R&D expenditures,           private
as well as governmental,               must be considered           in comparing       defense-
related    R&D expenditures             of the two countries.           DOD contends        that in-
dustry    R&D performed            in the civilian      sector     of the Soviet     Union does
not appreciably        benefit     the Soviet      Union defense        R&D effort.       Neverthe-
less the Director        of Defense        Research       and Engineering        informed        the
House    Committee        on Armed         Services     on May 25, 1971, that,           in making
funding    comparisons         betieen      the United      States    and the Soviet       Union:

        I’***   an attempt      was made to estimate        the equivalent       RDT&E
        value to the U.S. military          RDT&E    budget    of U.S. non--defense,
        non- space R&D items          which    the Soviets    might   have to include
        in their   military      and space budget     in the interest      of secrecy.
        Computer       madacturing        technology     was a major       item.    The
        estimate    for such civilian-furnished           RDT&E     to Defense      was
        between    $500 million      and $1 billion     per year in 1970 ***.‘I

                                                   5
B-172553




          The National         Science      Foundation,          which     has the statutory            respon-
 sibility   for collection         and analysis          of data on R&D in the United                   States,
does not attempt           to determine          how much R&D financed                    by industrial
companies         is defense-related.              This could be because                 of the inherent
problem       in trying      to arbitrarily         distinguish        between       ultimate     uses for
defense      as opposed        to civil     applications,          However,        we have identified
two areas       involving       R&D in the private              sector     where      it appears        that the
defense-related           R&D is significant,               These      areas    are:

           1. Contractors’         unreimbursed          IR&D

        According        to Defense       Contract       Audit     Agency      reports,     major      de-
fense and space contractors                incurred       $1,294     million      of IR&D     costs in
 1970.   Of this amount,          $1,087     million     was accepted          by the Government
for allocation      to all. the contractors8            work.       To be acceptable          for alloca-
tion,  such work        generally      must be related           to product        lines for which         the
Government        has contracts.           Consequently         it seems        reasonable       to assume
that the difference         between      the amount        accepted        for allocation       ($1,087      mil-
lion) and the DOD-National               Aeronautics          and Space Administration                share
($791 million),       01: approximately            $3QQ million,        represented        unreimbursed
costs incurred        for defense-related             research.

          We believe      that the IR&D      costs       incurred         in excess     of the amount
 accepted     for allocation       also represented          --to     an undetermined          degree--
 costs incurred        for defense-related           research,           Such costs,      amounting       to
$207 million        in 1970, were incurred             by major         defense     and space con-
tractors      as a means        of meeting    anticipated          customer       needs,     and conse-
quently     it appears      that such unreimbursed                cost would       represent      a sub-
 stantial    amount     of defense-related          research         financed     by private      industry.

           2. Computer         technoloa

        The importance         of considering         computers   when assessing                     the rel-
 ative R&D positions       of the United        States    and the Soviet    Union     is            evidenced
by reports    that there     is a serious       lack of computing        power    for              scientific
 and other   purposes    in the Soviet         Union,     Since computers       have               a high po-
tential  for military    application,        it is reasonable     to assume       that              much      of
industry      R&D     in the     computer      field    has   a definite       relationship       to defense.

                                                        6
B-l   72553




         The National      Science      Foundation        reported       that in 1968 the office-,
computing     - , and accounting-machine               industry      performed       $658 million
of applied    R&D.      About     90 percent       of this effort,        largely   related    to com-
puters,    was attributed       to industry       financing.        DOD believes         that these
figures    do not reflect      indirect     Government          financing.        DOD reported
that:

           ‘*In the United        States,   the total computer      R&D effort,   civilian
           and military,        is estimated      at about $1 billion   per year.       The
           major      fraction     of this is supported     by Defense    and space,
           indirectly        or directly.s*

Although   the two sets of figures        are not in agreement,          they substantiate
that there   is an undetermined,        but possibly     significant,      amount   of indus-
try R&D in computers         that would     benefit  the Nation”      s defense   activities.

DODMETHODOLOGYANDDATA

           In general      the methodology   used by DOD quantified            the Soviet                  Union
military        R&D efforts     according  to dollar    equivalents     for comparison                      with
United       States   efforts.    This was accomplished         in four   steps.

           1. Intelligence  community              estimates
              of R&D expenditures

           The     intelligence         community         analyzed       the Soviet    Union budget          to
estimate        financial        inputs     into military        R&D efforts.         DOD officials         in-
formed       us that the unitemized,                 or secret,        part of the all-union          science
budget      was considered              the primary         -funding     source   for military-related
R&D (R&D for military                     weapons,       space,      and atomic      energy).       Soviet
Union      data since          1958 do not show this breakdown;                   consequently          the in-
telligence         com.munitySs           estimates       of Soviet      Union  military-related            R&D
were      extrapolated           upwards        on the basis        of the 1950-57        trend.     The in-
telligence         community          converted        rubles      to dollars    by using        a $2 conver-
 sion rate,

          The financial       input     data were further            refined     by costing,     in dollars,
the   relatively    open      Soviet     Union  civil space           program.       The intelligence

                                                        7
          .


          B-172553




          community        based its estimates            on what it calculated            the United     States
          would    have had to spend to duplicate                 the Soviet       Union     civil space facili-
    -.    ties and accomplishments.                 These     estimates        were then subtracted            from
          the estimated        military-related          R&D expenditures,               The residual       repre-
           sented,   in dollars,        the Soviet    Union     military       R&D, including        atomic      en-
    - _
          ergy.    Because       of Soviet      Union    secrecy,        there   is no direct      way to rea-
          sonably     estimate       the R&D expenditures              for weapons        systems      under
          development         or for civil atomic          energy.

                     2. DOD’s     technological        assessment
                        Of OUtDUtS


                  In fiscal    year 1970 DOD initiated      a study to compare       the military
          and space technological         outputs   of the United   States with similar       outputs
          of the Soviet     Union from     1960 to 1968. The study estimated           the time      re-
          quired    for technological     improvements      and the number      of years    the
          Soviet   Union    took to reach     given levels  of United    States weapons      tech-
          nology.

                      From     intelligence         data, discussions         with specialists,      and subjec-
           tive judgments             of DOD officials,       technological-lead          assessments        were
           made of the two countries!                   space achievements           and about 100 of their
           military       weapons        systems.        The technological-lead           assessments        for
           individual       weapons         and space systems          were then surnm arized           into five
           major       system      categories.          DOD states      that the technological-lead             as-
           sessment         summaries           for the five categories           do not represent      specific
          weighted         averaging        of the individual       systems       but are consistent        with
          them      and correlate           with the broader        impressions         and experiences          of
          informed         persons.

                    The study revealed             that, during   the period    from    1960 to 1968, the
          United     States     maintained        its 2- to 3-year     lead in weapons        technology      and
.         established        a 2- to 3-year          lead in space technology.        DOD reasoned         that,
           since technological            leads were increased         by greater    relative      effort,  the
          United     States     military       R&D effort     must have been equivalent           to that of
          the Soviet      Union      and the United       States   space effort    must     have been 10 to
          20 percent        greater      than that of the Soviet       Union.

                                                                8
B-172553




           3. Comparison          of estimated         expenditures
              with output        results

          DOD compared              the results         of its technological-lead              assessments
with its estimates             of the United          States military        R&D expenditures,                the
National       Aeronautics           and Space Administration’s                  estimate        of the United
States     civil     space program,             and the intelligence           community~s            estimates
of the Soviet         Union     military        R&D and space expenditures                    for the period
from     1960 to 1968.             DOD reasoned           that, if comparative             estimates        of the
two countries’           financial       inputs    were      generally     in agreement            with the as-
 sessments         of their      comparative          outputs,      the reliability        of the intelligence
communityts            estimates        of the Soviet        Wnion financial          inputs,      as expressed
in dollar        equivalents,        would      be validated.         Jn addition,       the cause-and-
effect    relationship          between       financial      inputs     and technological            outputs
would be demonstrated.

         DOD claimed         that it was able to find a clear           correlation      between
the relative      inputs    and outputs,        DOD added that the intelligence             com-
munityfs     estimates       of Soviet     Union   R&D inputs      could vary       as much as
plus or minus        20 percent      and still fit observed        technological       outputs.
DOD reasoned          that greater     variances      in estimates      of Soviet     Union     ex-
penditures     would      be outside     the bounds     of observed       results.

           Because     of the reported       correlation     bebeen    the estimated      finan-
cial inputs       and technological        outputs,      DOD expressed     confidence    in the
intelligence        community~s      dollar     estimates    of the Soviet    Union military
R&D budgets.

         4. Projection         of current and future
            budgets        based on 1940-68    analyses

         DOD used the intelligence              community*s          estimates        of the Soviet
UnionIs     military       R&D funding      from    1968 to project           current      an$ possible
future    Soviet     Union    R&D results.        DOD compared             the Soviet       Union    bud-
get estimates         with similar     United     States    financial       data that DOD had
developed       and found that the Soviet          Union      military       R&D expenditures            had
been exceeding           those of the United       States     in ever-increasing             amounts
from     1968.

                                                          9
.

    B-172553



    OBSERVATIONS

            Secrecy concerning the nature of the Soviet Union science data
     requires a number of assumptions      in estimating   Soviet Union military-
    related R&D expenditures.       We were not permitted     to review the intel-
    ligence communityFs     supporting documentation     for its estimates of the
    Soviet Unioncs military-related     R&D budgets or the equivalent costs of
    Soviet Union efforts in civil space technology.       Therefore   we are unable
    to comment on the reasonableness       of such estimates.      However, as noted
    in the Stockholm International    Peace Research Institute’s      SIPRI Yearbook
    of World Armaments       and Disarmament     1969-70, experts who have made
    detailed studies of Soviet Union science data either make no estimates
    or make rough order-of-magnitude        estimates,    Those experts making
    rough estimates differ among themselves         by as much as 50 to 100 per-
    cent.

           The difficulty   in estimating  Soviet Union military-related     R&D
    expenditures    is further complicated    by the fact that the Soviet Union
    budget is stated in rubles and conseqtiently,      for comparative   purposes,
    it is necessary to convert the rubles into their dollar equivalents.
    There is no generally accepted rate for converting rubles expended
    for R&D into their dollar equivalents.       The yearbook states that the ex-
    change rates used in the various private studies, where conversion was
    attempted, ranged from $1,30 to $3.50 a ruble,

          Many experts, however, believe that a reasonable conversion   rate
    for Soviet Union military R&D work would be from $2 to $3 a ruble.
    Consequently the $2 rate which was used by the intelligence community
    may understate the Soviet Union R&D efforts.

           As reported previously,  technological-lead    assessments    for 1960-68
    were based upon intelligence   data, discussions   with specialists,   and sub-
    jective judgments of DOD officials.    The Delphi method1 was used to


    1
        Usually      consists,of         a series   of reported         interrogations          of persons     whose      opinions        ar   judgments        are   of
        interest.       After       the initial   interrogation         of each        person,      each subsequent         interrogation          is accompanied              by
        information           regarding      the preceding        round       of replies.        ,The   person   is thus       encouraged         to reconsider            and,
        if appropriate,           change      his previous      reply      in the light        of the replies     cp.f other       members        of the group.


                                                                                       10
    ,


    B-172553




    arrive    at a consensus       regarding       weapon    comparisons.        Subjective        judg-
    ments     were used when the data were incomplete                    or controversial.           Dis-
    agreements,       when they occurred,           were reported       to be seldom        larger
    than plus or minus         1 year.      We had neither        the expertise     nor the time to
    independently       test and evaluate       the technological-lead          assessments           and
.
    therefore     cannot    comment       on their    reasonableness.

              In comparing       the two countries’         financial       inputs     with their        hardware
    outputs,      we found that the degree           of correlation          varied      significantly,        de-
    pending       on the choice      of deflators     used to adjust           for inflationary         pressures
    in the U.S. economy            over the 9-year        period.       Inflationary         pressures        and
    effects      on the Soviet     Union R&D expenditures                are not known,            but DOD has
     stated that it is generally          assumed      that, because            of the Soviet        Union sys-
    tem of controlled        prices     and wages,       rubles      do not inflate.           Effects      of in-
    flation     on U.S. R&D expenditures,             however,        are well known             and are ad-
    justed     for by using either        (1) the gross       national       product       (GNP) deflator
    which      applies  to the economy           as a whole      or (2) a special           deflator      de-
    rived    for R&D goods and services.

             According      to DOD’s       technological        assessment        “Soviet     RDT&E
    produced       about the same number               of major     weapons      systems      prototypes
    at about the same rate of improvement                      as the U.S.”        Consequently,          on
    the basis      of comparable        outputs,     the United      States military         R&D expen-
    ditures    (financial     inputs)     should    have been equivalent            to those of the
    Soviet    Union.      Over the q-year          period,    however,      United     States    military
    R&D expenditures,            as estimated        by DOD, exceeded           comparable         Soviet
    Union expenditures,           as estimated         by the intelligence         community,         by 11,
    23, or 31 percent,          depending      on the use and choice           of deflat0rs.l


    .
    ‘Both    the GNP       and the R&D        deflators    attempt                       to convert     into     constant    1968     dollars       the funds       ex-
     pended     for U.S. military       R&D      and civil    space                    in the period        from      1960  to 1971.          The GNP         deflator
     is based     on the general     purchase        value of the                     dollar    during     1968;      the R&D     deflator        is based     on what
     the dollar      would    have bought      in R&D      goods                     and services      during       1968.     The two        values     tend    to in-
     flate  at different      rates.

         Because        the U.S. economy                    in general       and the R&D          costs   in particular         have been           inflating    steadily        from
         1960      to the present,               the use of either             deflator    to convert       the less inflated            1960      through      1967      dollars
        into     constant            1968    dollars       increases      the total     amount        of reported       expenditures;            conversely,       converting
        the more           inflated        1969      through         1971     dollars   into    constant       1968    dollars      decreases         the reported        ex-
        penditures.              Consequently,             since     DOD      and the intelligence          community           report      that      United    States      ex-
        penditures           exceeded          those      of the Soviet           Union    from     1960     to 1968        use of either           deflator    would        in-
        crease       these       differences         by increasing          the reported        United     Stetes     expenditures.


                                                                                          11
B-172553




         The difference            of 11 percent         results     from      comparing         expenditures
on the basis         of current        dollars     in lieu of constant           dollars,     i.e., without
applying      a deflator,          This comparison            assumes        that both economies              ex-
perienced       the same relative              amount      of inflation       over the q-year          period.
The difference          of 23 percent          results     from      applying      the GNP deflator            to
express      the United         States     expenditures          in constant       1968 dollars        before
comparing         them with Soviet Union                expenditures.            The difference          of 31
percent     results       from      applying     a special        R&D deflator          to the U.S. military
R&D expenditures              in lieu of the GNP deflator,

         In regard        to the    above     comparisons,           DOD     officials      have    stated     that
use    of current       dollars:

          I****     is hardest       to justify     on economic           grounds.       The R&D
          deflator        leads to the maximum                difference       but implies      that
          there       is no inflation      in the Soviet           R&D sector.       The GNP de-
          flator       would    seem to account           for the differences           in the gen-
          eral U.S. and Soviet             economic         systems        and would      imply     an
          inflation        in Soviet    RDT&E        relative        to the general      Soviet
          economy           comparable        to that in the U.S.”

CONCLUSION

           On the basis           of the limited       information           available       to us, we believe
that extreme             secretiveness          by the Soviet         Union     results       in data which     are
insufficient         for a realistic           measurement           of its military           R&D efforts.      At
best, dollar          valuations         of Soviet    Union      military       R&D programs             are only
 rough      guides      to the Soviet         Union’s     relative       level    of effort.       In our opin-
ion the general             technological         assessments           as developed            by DOD can pro-
vide only general               support      for those      rough      guides;      they cannot       refine
them.        Consequently,            although      we believe        that the DOD methodology                with
its limited         data base may be useful                 in indicating         trends       and the apparent
magnitude          of the Soviet          Union military          R&D threat,          we have reservations
as to its usefulness                in quantifying       relative       efforts      or spending       gaps be-
tween      the countries.

         As you requested,    we are making    available                       to you a General    Ac-
counting    Office staff study entitled  **Comparison                         of Military Research

                                                         12
B-172553




and Development         Expenditures             of the United      States and the Soviet            Union,”
which    contains   detailed       information         obtained      during     our limited       survey.
Part  I, entitled    “Introduction”            and “Research          and Development            Expendi-
tures   in the United      States,”      is unclassified.           Part II, entitled         “Depart-
ment of Defense        Methodology           for Assessing         United     States   and Soviet
Union Military      Research          and Development           Efforts,”       is classified       “Secret”
as it is based,    to some extent,              on classified      information.

         In accordance      with the agreement       reached    with your office,       copies
of this report      are being    sent today to the Chairmen          of the Senate     and
House     Committees      on Armed     Services,    the Senate     and House     Committees                            .‘7 ’ .-
on Appropriations,        and the Senate and House          Committees       on Government                                   s ri
Operations.        Copies   of the report    are also being     sent today to the Direc-
tor, Office     of Management       and Budget.     Copies    of the report,     together                      ,
with copies      of the staff study,    are being    sent to the Secretary        of Defense.”                     ’

                                                             Sincerely    yours,




                                                           Comptroller         General
                                                           of the United       States

The Honorable         Thomas     J. McIntyre
Chairman,        Subcommittee       on Research
    and Development            I
Committee        on Armed     Services       p+ , r .,. :,
United    States    Senate




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