Soviet Progress vs. American Enterprise:
Report of a Confidential Briefing Session
held at the Fifteenth Anniversary Meeting of the Committee for Economic Development,
on November 21, 1957, in Washington, D.C.

(Garden City NY:Doubleday & Co., 1958)

Two chapters are here excerpted from the full text =
J. Sterling Livingston on military production and procurement [with brief bio of author]
William C. Foster's assesses the status of USA in the world with recommendations [with brief bio of author]

[SAC editor has added boldface and hypertext links to SAC and other www material
to emphasize and explicate passages of particular significance to our course]

Some useful background reading =

Opaque hints follow in the chapters excerpted below, suggesting some sort of high-level antagonism, state vs.scientists or military vs.businessmen. For clarification =
*--An article by Donald Welzenbach on James Killian, Jr. (President of MIT, mentioned by Livingston below), Edwin Land (Polaroid Corporation President), and the US Central Intelligence Agency
*--The two chapters here excerpted should be read with what became known as "The Gaither Report" [W TXT], written by Paul Nitze and issued in the same month
*--Here is a thought-provoking review dealing with the Gaither Report and what was happening in and around these critical days in November
*--Go right to page 2 of this review on the same topic and read to the end. Supposedly secret, the Report was leaked to the press, as this reviewer tells us =

The report became public a little more than a month later. The headline of Chalmers Robert’s front-page story in the Washington Post on December 20, 1958 read, SECRET REPORT SEES U.S. IN GRAVE PERIL. (p.139). ...It was Roberts who received during the Dienbienphu crisis of 1954 [ID] the "leak" that credited the Democrats for "The Day We Didn’t go to War." Still, it takes little effort to connect the Gaither Report to allegations of a Missile Gap during the 1960 campaign [ID] [and] to the victorious Democrats’ military programs which provided substance to Kennedy’s promise to "bear any burden."



Are Military Production and Procurement Now a Matter of Soviet Enterprise vs. American Bureaucracy?
Professor of Business Administration Harvard University
(Julius Sterling Livingston was the author of a case-book for business education and a text book}

I was fascinated this morning, as I am sure you gentlemen were, by the remarks of Mr. Dulles, Mr. Randall, and Vice-President Nixon. I think they made it perfectly obvious to all that we are in two races, one an arms race and the other an ideological race. The evidence seems to indicate that we are lagging behind the Soviets in the arms race because of "calculated decisions made by the military people" which resulted in our not undertaking the development of the ICBM at the time the Soviets undertook its development.

It appears to me that a critical question to be asked in connection with the arms race is why we did not decide to go forward with the intercontinental missile in 1945 when the Soviets did, particularly when our Intelligence


told us the Soviets were going ahead with that missile. Related to that is the question whether we can expect similar "calculated decisions" in the future to result in further lag in our armament effort.

It seems to me that the answer to the second question is "yes," and I hope today to explore with you the decision-making process of the military establishment, which is critical to our ability to keep pace with the Soviets in the development of missiles and other weapons.

The second race we are engaged in is in an ideological race. We have been told that the ideological race is largely economic, and I am sure we all agree. It is also a race for the minds of men, particularly the minds of the uncommitted men of the world. The contest for the conquest of space is very closely related to the contest for the minds of men. This is so because outer space in many ways is a proving ground on which the superiority of the Communist system or the free-enterprise system can be demonstrated. Outer space is a gigantic showcase, and the minds of men may be more influenced by the products we put in this showcase than by the economic or other aid we offer them.

Another critical question, therefore, is whether our economic system can compete with the Soviets in the conquest of space, which is in part a military conquest and in part an ideological conquest.

To me, the tragic part of this race is that the outcome depends not on the strength of free enterprise but rather on the decision-making process of the military establishment. In fact, we are using the free-enterprise system to


a lesser extent in the development of our weapons now than we have in the past. Our military procurement process is not taking full advantage of the creative capability of the free-enterprise process, and we should give some attention to that problem today.

Let us look at the military decision-making process. You probably will be astonished, if you do not already know this, when I tell you that from the time a new weapon idea is conceived until a decision is made to proceed with its design—not its production, only its design—a period of five years, on the average, elapses. Former Secretary of Defense Wilson appointed an Ad Hoc Study Group on Manned Aircraft Weapons Systems last year to investigate the reasons why the Soviets were able to produce weapons, in some instances, in half the time required by the United States.

The B-52, for example, required approximately eight years from its conception to its production. The comparable Soviet bomber, the Bison, was reported to have been developed in from four to five years. Their supersonic fighter aircraft, the Farmer, was reported to have taken four years to conceive and produce, compared with seven years for our F-102. The Ad Hoc Study Group reported to the Secretary of Defense that, on the average, it has taken us ten years to conceive and produce new air-weapons systems, and approximately half that time, or five years, has been required simply to decide whether we were going to go ahead or not go ahead with a specific weapon.

The reason for this, of course, is complex. The reason


in part is that the military services have a very complicated and involved process for planning weapons requirements. The excessive time required for decision-making is due in large measure to the fact that authority and responsibility are widely divided among a large number of organizations in the headquarters of each military organization, and also in the subordinate commands.

Within the Air Force, for example, the planning cycle starts with the preparation of a document known as the Development Planning Objective. This document is forwarded by Headquarters, USAF, through Headquarters, Air Research and Development Command (ARDC), to one of its eleven research centers for determination of feasibility. Feasibility determination is usually made after a study contract has been completed by a weapons manufacturer. The results of the study are returned to Headquarters, USAF, via Headquarters, ARDC, for the drafting of the requirement for a new weapon system. After this draft is reviewed by some twenty to thirty interested USAF offices, it becomes known as a General Operational Requirement. Up to this point an average of three years has elapsed in the cycle. An additional two years is required on the average to prepare, co-ordinate, and obtain approval of development plans for the weapon system. Approval of a Development Plan results in issuance of a Development Directive, which is the definite decision to start the actual design and development phase of a new weapon. It has taken an average of five years to get this directive for air weapons during the last decade.

The problem can't be solved solely by finding a way to


make decisions faster. As Mr. Dulles pointed out this morning, the problem is also one of emphasis. What weapons are we going to emphasize? It is equally important that we select the right weapons for development.

Unfortunately, the military services historically have neglected the development of radically new weapons because of pressures on them to be ready for any eventuality. In order to ensure maximum readiness they have tended to concentrate on those weapons which would be operationally ready in the shortest period of time, to the detriment of long-range and radical weapons development.

Let me give you a specific example. The Air Force in 1946 placed a contract with Convair (which was then Consolidated Vultee), for a study of the feasibility of the long-range ballistic missile. That study contract was canceled in 1947 and the decision was made to concentrate on the air-breathing Snark and Navaho missile because these missiles appeared to be capable of becoming operationally ready in a shorter period of time. The Convair missile study was not reinstituted until 1951, and the Air Force did not give ballistic missiles a high priority until 1954, when the Strategic Missile Evaluation Committee, a civilian scientific advisory group headed by the late Dr. von Neumann of Princeton University [ID], advised this action.

There is no doubt that we would be further behind today if Convair had not continued research on the intercontinental ballistic missile with its own funds when military support of the project was dropped.


Now the immediate problem that is before us is one of speeding the development and production of ballistic missiles. You have heard, I am sure, a great deal of evidence which indicates that we don't have too much to worry about in our missile program because a great deal of emphasis and attention are being given to it. But, gentlemen, if we concentrate on the short-term objective of developing ballistic missiles which are now in the development stage and we neglect the equally fundamental problem, long-term research and development, we will certainly be outclassed by the Soviets in the future. This danger is emphasized by the statement made last week by Dr. von Braun [ID], who heads the scientific work on the Army's ballistic-missile program. Some of you may have read the statement. He said:

"We do not have a really powerful rocket engine today simply because none of our crash missile programs needs it, but in order to beat the Russians in the race for outer space we absolutely need it and the development of such an engine needs several years."

The United States can achieve scientific and technological leadership only by vigorous and farsighted programs of research and development. Available evidence clearly demonstrates, gentlemen, that the military services cannot be counted on to carry out such programs. Although the services are doing a great deal to overcome the weaknesses in their decision-making process, in my opinion, there is very little likelihood that they will be able to correct the deficiencies in sufficient time to keep pace with the Soviets. The military services are too


complex and too large to reorganize quickly. As one military historian has put it, "Reorganizing the military services is like kicking a two-hundred-foot sponge around."

Moreover, the traditional mission, the traditional responsibility of the services to be ready for any eventuality is very likely to result in concentration on weapons or missiles which can be produced in a short period of time, to the neglect and sacrifice of the more radical long-range weapons development. For that reason I believe that the weapons-planning process in the military services has to be by-passed, and that responsibility for the development of radically new weapons—I am not talking about improvements of existing weapons, I am talking about radically new weapons—should be transferred from the Department of Defense to a civilian scientific agency similar to the Office of Scientific Research and Development [ID] which we had in World War II.

I know someone will ask this question, so let me address myself to it; I believe President Eisenhower's appointment of Dr. Killian as Special Assistant to the President for Science and Technology will not get to the heart of the problem unless Dr. Killian or some civilian agency is given full and exclusive responsibility for long-range weapons development and the research budget to carry through production to the prototype and testing stage. This is what the Office of Scientific Research and Development had in World War II, in contrast with all the boards and agencies which have been singularly unsuccessful since then. It is important that we not forget that the technological


leadership in weapons which we held at the end of World War II and the decade that followed was achieved primarily because of the developments initiated by the Office of Scientific Research and Development during the war, or by the efforts of independent scientists. Let us not fail to note also that the Soviet Academy of Sciences, which is responsible for the earth satellite and the missile program, is independent of the Soviet Ministry of Defense.

[Comment by SAC editor = A remarkable assertion, and not just in the use of the adjective "independent" but in the larger implication that USA might benefit from imitating an important aspect of the Soviet system.]

Dr. Bruckner, who is head of Associated Universities, an organization through which universities carry on much of their atomic-energy research, presented the case for transfer of responsibility from the military services to an independent agency when he stated before the Subcommittee on Military Operations of the House: "The development of radically new weapons never has been done successfully under the control of the Armed Forces and no single example to the contrary can be cited."

Let us assume that in one way or another we take steps which will enable us to decide quickly and wisely what new weapons should be developed. Then our ability to win the arms race will largely depend upon how efficiently the free-enterprise system is able to develop and produce weapons.

May I point out, however, that if we and the Soviets decide at the same time to develop a radically new weapon, something like an ionic missile, the Soviets probably will build it first, for two reasons: First, because we require a very considerable period of time to select contractors and to negotiate contractual terms, a process


which is absent in the Soviet system. And secondly, because our weapons contractors lose a considerable amount of time securing approval from the military services for engineering and technical decisions which are involved in the design and production of the weapons. We cannot eliminate the time required to select contractors and negotiate contractual terms unless we eliminate the competitive system in weapons production. We can, however, do something about the loss of time in securing approval for contractors' technical decisions.

Under our present procurement and production system, the military services place responsibility on contractors for weapons design and development, but they often specify how the work shall be carried out and they retain final authority to approve or disapprove designs, engineering and configuration changes, and deviations from specifications. As a result of this division of authority and responsibility, the attention of the contractor's scientific and technical personnel is diverted from the creative aspects of research and development by the necessity to justify and obtain approval for their technical decisions. A great deal of time is thus lost by the technical decision process, and both the contractors and the services perform a considerable amount of unproductive work. The contractors must divert engineering talent to the preparation of data and drawings which will support their technical decisions, and the services must, in turn, maintain a technical staff to review, evaluate, and approve these drawings and data. The unsound duplication of effort that is caused by


the division of technical authority and responsibility between the services and their private industrial contractors can be demonstrated in the case of our intercontinental-ballistic-missile program. Many of you gentlemen know, I am sure, that the Air Force found that the Air Research and Development Command did not possess the technical talent required to approve designs and review technical decisions of the contractors building the ballistic missiles, so the Air Force hired a systems engineering contractor to advise the Air Research and Development Command on technical aspects of missile development. That firm gives technical advice to the Air Research and Development Command so it in turn can give sound advice to the ballistic-missile contractors. So you have the Air Force hiring a contractor to advise it on whether to approve or not to approve technical decisions made by other contractors.

The solution to divided authority and responsibility and indecision is not to assign authority to a new organization and further divide authority and responsibility.

The inefficiency in the present system, it seems to me, could be eliminated by holding contractors only to performance specifications until the prototype is produced, tested, and modified for production. At that point the design could be frozen and specifications prepared for production. It would, thus, be possible to get better performance by giving a greater degree of authority to contractors and by eliminating much of the present division of authority which is responsible for a great deal of inefficiency.


The private-enterprise system cannot compete with the Soviet system if we shackle the initiative of our private managers, because this is where the strength of the private-enterprise system lies.

I am sure that I do not need to tell you gentlemen that the productivity of the private-enterprise system is influenced heavily by the profits a corporate manager can make. This fact has been largely ignored in the development of our military procurement policy. Profit is an important factor, not only in the selection of the work the contractor will undertake, but also in the efficiency with which he performs the work.

There is considerable evidence at the present time that military profit policies are not only inadequate to encourage contractors to engage in weapons development but also unsound because they result in waste of scientific, technical, and production man power. Let me illustrate this. The profits that can be made on military research and development contracts provide little incentive to undertake that work. Congress originally authorized the services to pay contractors their costs plus a fee of up to 15 per cent of their cost, as profit. The Department of Defense, through the Armed Services Procurement Regulations, has reduced the maximum fee to 10 per cent, except with the approval of the Secretary of the service awarding the contract, an approval which very rarely is given. Military contracting officers, in turn, seldom agree even to the 10-per-cent fee. Typically they negotiate a fee of 6 to 7 per cent, but the fee of 6 to 7 per cent is not a real fee because, through the Armed Services Procurement


Regulations, many costs which contractors must incur are disallowed in research and development cost-type contracts. As a result most contractors are fortunate to make 3 to 4 per cent on government research and development contracts.

You will agree, I am sure, that this profit is insufficient to provide an incentive to use highly skilled engineers and scientists to develop missiles and weapons which are required for the nation's defense. In case you have any question about this, let me report that Dr. Dean Wooldridge, of the Ramo-Wooldridge Corporation, the systems engineering contractor for the Air Force's ballistic-missile program, stated at the June 1957 meeting of the Institute of Aeronautical Sciences that in his opinion civilian contractors would seldom, if ever again, furnish a technical staff to the military services solely for weapons-development work because of the low financial return from this work.

If our objective is to enlist the free-enterprise system in weapons development, our profit incentives certainly do not help us.

The solution, gentlemen, is not one simply of increasing profits. The solution is not one solely of increasing the fee on research and development contracts from, say, 10 to 15 per cent. Rather an entirely new profit concept is required, in my opinion, because, under our present profit policy, the higher the cost estimates a contractor can justify to military contracting officers, the higher will be his profit. Accordingly, contractors are encouraged to use as much man power as they can convince military contracting officers they need.


The mass engineering techniques which defense contractors are accused of using are an example of this waste. Mr. James Bridges of the Office of the Secretary of Defense, who has made a study of mass-engineering techniques, has this to say: "[There] is a growing tendency in industry to approach military research and development jobs on the basis of mass engineering, an expression used to describe the situation where several engineers are assigned to a job which could be adequately accomplished in the same length of time by one competent engineer properly supported by technicians . . . There is little doubt that cost-plus-fixed-fee method of contracting . . . is responsible to a considerable degree for the growth of the mass-engineering philosophy . . ."

The policy of negotiating profit on a percentage of estimated or actual cost also discourages the use of labor-saving equipment and machinery and encourages the waste of man power. Under this policy contractors have a strong incentive not to introduce automatic equipment which will reduce the need for labor and cut costs.

Let me illustrate why. If a defense contractor buys automatic labor-saving equipment, if he automates the plant and reduces the cost of making a product from, let's say, $1,000 to $100, his profits subsequently will be reduced from, say, $100 to $10, if he has a cost-type or redeterminable-type contract or obtains a follow-on fixed-price contract. Now, in addition, if he borrows money to buy this equipment, the interest on that money will be disallowed on all cost-type contracts and probably will be disallowed on most redeterminable contracts; hence his


profit will be cut further. Why, then, would a contractor undertake to install labor-saving equipment to reduce his costs when the primary effect would be to reduce his profit? I don't believe he is going to do it, and I don't believe you would expect him to do it.

I believe there is really a great danger that as a result of our profit policy our weapons industry will become inefficient. We cannot beat the Chinese and Russians by using more man power in the production of weapons than they use. We can only do it through the use of labor-saving equipment, and this labor-saving equipment will not be purchased and installed in defense plants unless there is a positive profit incentive to do it. In order to give military contractors a positive incentive to install labor-saving equipment, which will reduce costs, a major factor in the profits on military contracts should be return on total assets employed rather than a percentage of estimated or actual costs.

I am well aware of the fact that no single yardstick is an ideal measure of reasonable and fair profit, but incentives which are related to capital employed are essential in a capitalist economy to attract the investment required for the purchase of research and production facilities. Weapons contractors can be induced to invest in the facilities and equipment needed to keep pace with the Soviets only if they are assured of an adequate return on the funds invested. They cannot be induced to make these investments if they know the return will be inadequate.

I have only one further point, but it is an important point because it has to do with the fundamental question


of whether we want a competitive free-enterprise system in weapons design and production, or whether we want to establish a semi-monopoly. As you know, at the present time a large percentage of the facilities used by weapons contractors are furnished by the government. What we have failed to recognize is that you can't have competition —true, real competition—if a large share of the production facilities are owned by the government.

While a form of competition still remains in weapons contracting, the Ad Hoc Study Group on Manned Aircraft Weapons Systems, which I referred to earlier, reported to the Secretary of Defense this year that in the past ten years only 30 per cent of air weapons contracts placed by the Air Force were based on formal, open-design competition. In most instances the awards were based on such factors as, ". . . the need for maintaining the industrial base by spreading the work," or "limited competition among selected eligible manufacturers."

Indeed, it is now common Air Force practice to survey and evaluate eligible contractors in terms of past performance and current resources and to select contractors without formal design competition. Contract awards for air-weapons systems are made increasingly to those contractors who have available facilities and tools, including those furnished by the government.

Since government tools and facilities are typically not transferable from one contractor to another, except at very considerable cost to the government, the military services naturally are reluctant to incur the cost involved in duplicating facilities solely to stimulate competition.


The Assistant Secretary of the Air Force for Research and Development, Mr. Richard Horner, has explained the present philosophy of the Air Force in placing research and development contracts as follows:

"We are ... understandably reluctant to create new facilities and new organizations. . . . Thus, it can be seen that a contradictory situation might be created where one company might propose a superior technical solution whereas preponderance of necessary facilities and technical manpower might be located with another company. There is no completely satisfactory solution to such a dilemma. The loser of a technical evaluation is rarely convinced that his proposal was not, in reality, the best solution, and it is very difficult for the winner to understand why he is not given full opportunity to exploit the fruits of his ingenuity, regardless of over-all cost of the program to the government. . . ."

Now, may I repeat that last statement, ". . . it is very difficult for the winner to understand why he is not given full opportunity to exploit the fruits of his ingenuity, regardless of the over-all cost to the government. . . ."

"It appears," Secretary Horner continued, "that one of the most satisfactory compromises may be an increasing use of multiple-source contracts for development; where two or more companies are invited to jointly contribute to the accomplishment of a project, each providing the services for which it is best fitted. The solution in itself can be very difficult to administer and we recognize our deficiencies in officiating in such a marriage."

The Air Force is thus faced with the dilemma of


either accepting inferior designs in order to avoid the expense of duplicating production facilities, or of encouraging the aeronautical industry to pool its resources and to rationalize its production. But by indirectly forcing multiple-source contracts, the military services are clearly stimulating the establishment of a weapons cartel in which effective competition eventually will be eliminated.

I believe serious doubt may be raised whether this policy is wise for the aeronautical industry or compatible with the free-enterprise system. But let me say, if pooling of facilities and resources is essential, then it seems to me the ritual and the pretext of competition should be abandoned and weapons producers should be dealt with as semi-publicly owned monopolies. Such an arrangement would at least have the advantage of saving time and effort in weapons procurement and production and would permit the establishment of much simpler contractual relationships with contractors. As it is, we go through the process of selecting contractors and negotiating contractual terms three times during the development of a weapon. First we go out for feasibility studies, then we go out for design studies, and finally for development and production of the weapon.

The solicitation of design proposals and the selection of design contractors alone has consumed as much as a year in the weapons-development cycle. If weapons manufacturers are encouraged to pool their resources and contracts are awarded to "spread the work" or to "avoid creating new facilities and new organizations," then there is little justification for the very considerable delay and effort


which we go through as part of the ritual of competition.

The threat of Russian technological progress and weapons development makes it imperative, I believe, that the nation decide what kind of a weapons procurement and production system it wants. The present hybrid system does not permit us to gain the full benefits of competitive private enterprise, yet it shackles us with the delays and the effort inherent in contractual methods which can be justified only because we believe we have a competitive system.

In order to restore effective competition the military services must stop furnishing facilities to weapons contractors, so that the services may be free to place contracts with those manufacturers who submit the best technical proposals or the best weapons designs. In turn, contractors must take the risks and be willing to invest in the facilities which are required for weapons production under the competitive private-enterprise system.

Clearly the arms race is a test of two productive systems, the Communist system on the one hand and a distorted version of the free-enterprise system on the other. The problem confronting the United States is that of aligning its weapons production and procurement system so that it can take advantage of the strengths inherent in the free-enterprise system.

The executive vice-president of the General Electric Company, Mr. C. W. La Pierre, summarized this problem when he said:

"For our defense and atomic energy work we depart widely from the normal American private enterprise


systern. Our defense work is being carried out with a minimum of incentive and highly centralized government control of detailed plans and operations. . . . Unquestioned superiority of American weapons could be obtained by finding a way to fully use the American system to evolve and produce them."

It seems to me that the way to use the American system of free enterprise in the development and production of weapons is not difficult to find.

First, steps must be taken to promote private ownership of weapons-production facilities and to encourage the use of labor-saving equipment by basing profit in military contracts largely as return on assets rather than on a percentage of estimated or actual costs.

Second, competition must be restored among manufacturers, and the pressure to establish a munitions cartel must be abandoned.

Third, the division of technical authority and responsibility must be eliminated by holding weapons contractors responsible, in so far as possible, only for weapons performance, and by giving them greater freedom to decide how the required performance can best be achieved.

And, finally, a new weapons-planning system must be evolved to assure that a scientifically directed long-range research and development program will permit the prompt and wise selection of the weapons to be developed.







Address Delivered at the Ninth Annual Conference on U.S. Affairs
Vice-President of the Olin Mathieson Chemical Corporation, and a Trustee of the CED

The following talk by William C. Foster, given at the U. S. Military Academy, West Point, New York, on November 4, is appended because the CED believes that it bears directly on the issues raised in the preceding papers. Mr. Foster was formerly Deputy Secretary of Defense, and acting co-chairman of the special presidential study group known as the Gaither Committee [TXT of that Committee report, generated well before Sputnik, but given a favorable emotional atmosphere by the coincidence of Sputnik. More bibliography]

Our foreign policy is basic to our national security policy and was aptly characterized in part of the quote from John Foster Dulles in your problem paper for the conference. That, you will recall, reads: "Our foreign policy accepts change as the law of life. We seek to assure that change will be benign and not destructive, so that it will promote not merely survival, but freedom and well-being." But there are some parts of the basic material making up national security policy which do not change. They are constant. Some help and some hinder us in attaining our objectives.

For our part, one firm position has never wavered since our nation was founded. We have always been ready, by force, if necessary, to protect our way of life and what it


stands for—freedom, democracy, and individual human dignity.

To continue this position means we must not only be strong and ready to defend ourselves, but we must also wage the peace by supporting peaceful evolutionary change and by spreading the ideal of freedom through political, economic, and educational means. However, on the part of the nation which currently threatens our objectives for the world and ourselves, there continues a traditional expansionism initiated by the province of Muscovy in the fifteenth century [ID]. The Russian expansionism of today is cloaked in new garments—the ideology of world communism. There has just been issued another of their manifestoes, in which sixty-four Communist nations joined. This echoed much of the basic threat to our principle of the importance of the individual. Thus, the Soviet Union has now support in its expansionism from many other nations, most important of which is Communist China, also committed to the destruction of our way of life.

These two opposed major elements—our firm desire for a free and good world versus the Soviet's will to expand— ebb and flow as changes in economics, politics, and technology occur. So how do things stand? How do we ride out peacefully the tremendous technological revolution in weapons? How do we help meet the rising expectations of uncommitted, less developed nations, for instance those in Asia and the Middle East, while we still maintain our security position? How good is our security position as of today?


The last few weeks have seen a sharp change in the state of mind both of the country at large, and in the government executive and legislative branches. Any complacency seems to have been dispelled.

The National Security Council is continually examining our relative position with respect to potential enemies and our co-operative position with allies. Many special studies are made as occasion requires. Sputnik I and Sputnik II were effective searchlights into certain dark corners of intelligence. Out of all these exercises have come some clear signals as to the direction our security activities and policies should take.

Perhaps, before attempting to define what some of those directions might be, it would be useful to put in focus the nature of the threat posed by the Soviet Union and its satellites, and then, similarly, the great resources which we and the free world can draw upon to counteract that threat. Millions of words have been published on these subjects in the last few weeks and I shall try not to be repetitious. My purpose is to try to look at a balanced picture from the vantage point (without breaking security, I trust) of a recent look at all of our major weapons systems, intelligence data, and leadership resources in the field, both civilian and military.

As to the threat, all of us have been aware that the U.S.S.R. has been getting stronger in many ways. It has also been clear that she has devoted a disproportionate share of her economic strength to military ends and heavy industry, with a much lesser growth in agriculture and consumer goods. She has impressed us, particularly


lately, with the speed of her technological and scientific progress, bringing her capabilities close to our own in some fields at least, such as metallurgy, electronics, and propulsion. Should the relative rates of progress continue, she could, not long hence, surpass us. Out of this background appears a fivefold threat. First, military: The U.S.S.R. has a four-million-man military establishment, well trained and well equipped in the weapons of both nuclear and conventional warfare, together with a strong industrial structure geared to the production of weapons of nuclear construction, which pose a constant threat of military aggression. Their backup includes a strong steel industry, machine-tool industry, aircraft and missile industry and nuclear industry. The armies of the satellites of the Soviet Union add to the military man power approximately four million more fighting men, even though there is question as to their training and dependability.

A comparison of the rate of industrial growth of the Soviet Union over the last twenty-five years shows it to have been about twice our own rate over the same period. The U.S.S.R. is devoting about 25 per cent of its production to things military, while the United States has been setting aside about 8.7 per cent of its Gross National Product to these military ends. Some indication of the damage that the U.S.S.R. can probably inflict on the United States can be seen in the figures recently quoted by Dr. Henry Kissinger, whom you will hear later tonight. In Chapter 3 of his recent work Nuclear Weapons and Foreign Policy, he speaks of tens of millions of possible


deaths in case of nuclear attack with megaton bombs (which it is believed the Russians now possess). This would, of course, present a problem of defense and restoration of normal functions after attack unlike any experience mankind has ever faced.

Second, economic: With the continued increase in the production of hard goods by the Soviet Union, a serious threat of another type is posed. Prior to '54 the U.S.S.R. had utilized the flow of commodities to exert political attraction mainly within the Communist orbit. Now, however, she appears ready to export hard goods, in an attempt to secure political advantage within certain strategic areas of the free world and in particular in the Middle East and South Asia. She is now moving to the status of an industrial state and is, more than ever, in need of raw materials produced extensively by the underdeveloped nations. Thus, she is in a strong position to woo these countries through trade, because she is not only giving them loans at low interest rates, accepting payment in local currency, but she is also willing to arrange bilateral deals to buy specific hard-to-sell raw materials from such countries in exchange for industrial goods on a barter basis. The political attraction that can attach to such a flow of commodities, military weapons in particular, is great. Certainly a country such as Egypt or Syria that receives military supplies from the U.S.S.R. becomes more dependent on it. Another element in this economic challenge is that the Soviet Union and Red China go to great lengths to prove that they have an economic-development



model with real appeal for many of the underdeveloped nations.

Third, the technological threat: Increasing resources of scientifically trained personnel in the Soviet Union pose another type of threat. This has been highlighted by Sputniks I and II. The March '53 report of the Subcommittee on Research and Development of the Congressional Joint Atomic Energy Committee warned us that the total number of scientists and engineers in the U.S.S.R. exceeded that of the United States and was more than three fourths of the total of 1,150,000 in our country and the fifteen Western European nations combined. This report maintains that the latter gap will be narrowed rapidly while the Soviet universities and technical institutions continue to graduate engineers at about twice the rate of the United States. Some observers have maintained that the Soviet ideology prohibits the freedom of inquiry requisite to basic scientific progress. However, the thesis of the recent report of the National Science Foundation to President Eisenhower is that although the U.S.S.R. is still technologically underdeveloped in comparison with the United States, there exists a more favorable balance between basic research and applied research and development in Russia, with one fifth to one third more scientific personnel devoting full time to basic research than in the more technologically oriented program of the United States. This report finds the Soviet Government providing able, high-ranking administrative leadership in science and technology and an effective atmosphere for the education and use of capable and devoted scientists


with a lesser emphasis on the immediate applications of science. This is not, of course, to deny the proved ability of the Soviet Union to engineer complex weapons with relatively short lead times when its rulers are willing to concentrate sufficient resources in the particular project. Fourth, the ideological challenge: Use of an ideology of world-wide appeal to extend the power of the U.S.S.R. and its satellites has been a continual threat since the Bolshevik Revolution. In the light of de-Stalinization [ID] and suppression of the Hungarian revolt [ID], this may have waned somewhat, but Khrushchev has been recently making strong efforts to take the lead again. This leadership is potent, particularly in the newly emerging nations with strong feelings about their colonial pasts [EG].

Fifth, the threat of political subversion: This will remain as long as Communist parties exist within nations of the free world. The Communist Party has particularly made excellent use of the passionate and deep-seated sense of anti-colonialism and nationalism present in Africa and Asia. For example, when one considers that the main elements of nationalism existing in the Arab world are hatred of Israel and opposition to Western influences, one can see the opportunities presented to the U.S.S.R. Chinese minorities in South and Southeast Asia also afford fertile ground for subversion in that area by Red China [EG].

This is a grim and foreboding picture, but fortunately we, too, have great resources to meet these threats:

First, resources in the United States.

1. Military: We maintain a military establishment of


two and a half million men, well trained and equipped in case of a general nuclear war. We do, however, need to be ever alert to protect the ability of these forces to respond in time in case of surprise attack. We also need new emphasis to be sure our offensive striking power will be developed in the missile field soon enough to match or be superior to the Soviet's, in order to preserve the deterrent effect of our retaliatory strength. Currently we are concerned whether we are well prepared to counteract local, limited aggressions of the Sino-Soviet Bloc. This sort of aggression, so-called nibbling attacks, might well be their chosen method to cut away our ties with the rest of the free world.

2. Economic Assets: The great inherent advantage we still hold is the presence of a massive industrial structure, which can, if we choose, be geared to support a larger and more versatile military establishment than can all the industrial facilities of the U.S.S.R. We presently are roughly matching the economic resources that the Soviet is devoting to the military. We are doing so with less than 10 per cent of our Gross National Product, whereas the Soviet is using 25 per cent. If we devoted, for instance, another 10 per cent of our resources, still leaving 80 per cent for such things as consumer goods, services, and all our present high standards of living, the Russians, in order to match us, would have to take away from their people one third of all the already sparse good things of life they have. This is because their Gross National Product is now only about 33.3 per cent of ours, and even after ten years of


their estimated faster rate of growth than ours, it would still be only one half of ours.

We also have deeper reserves in most things, material or human, if we are willing to use them for military purposes.

We have had enough basic wealth so that we have been able to extend aid of more than fifty billion dollars throughout the free world during the last decade. At the same time our own living standards have increased sharply. Aid, military and economic, given through the Truman Doctrine, the Marshall Plan, Point Four Program, Mutual Security Appropriations, and ICA has been used to help build the free nations' strength and to stem the flow of world communism in areas vital to U.S. security. We have the largest industrial plant and the most productive labor force in the world.

3. Technological Assets: While the U.S.S.R. may train more engineers and scientists each year, the quality of those turned out by our school system is still unsurpassed. Another of our great assets is the extremely high level of technological skills achieved by the skilled workers who manipulate our massive industrial plant.

4. The vitality of our way of life offers widespread appeal both to Americans and to those abroad who would emulate us in the major elements of the American philosophy. That these ideals are meaningful, not only to Americans but also to other peoples of the world, is shown by the objectives and resolution of the Hungarian revolutionists of a year ago. We, not the new classes of communism [ID], are the true revolutionaries and the protagonists


of the new dignity of man. Assuming firm leadership in the education of our people on the problems we face, our system of life has and can continue to contribute greatly to the over-all strength of the free world. The resources in spirit and things from millions of centers of initiative of individuals in a free society can never be matched by the submissive efforts of unhappy half slaves.

In addition to these resources of ours, we can count on substantial additive facilities from the balance of the free world.

1. Military: The contribution of forces by our allies to NATO, while not as great or as advanced as had been planned, are a considerable addition to our shield for limited military operations in Western Europe and the Mediterranean. Our allies also provide not only forward bases for light manned bombers and other tactical aircraft now, but can do so for IRBMs with nuclear warheads soon, if legislative and political acceptance is developed. The geography provides as well a sound basis for early warning over a broad range of attack channels against the continental United States.

2. Economic: With the exception of the Soviet Union, the major nations in the remaining industrialized areas of the world—Western Europe and Japan—are allied with the United States. The forces of our industrialized allies turn the strategic balance in our favor, since the combined industrial resources and the pool of skilled men and man power of NATO alone exceed those of the Sino-Soviet Bloc by a considerable margin. Although the vast potential of India is not now placed on the scales beside


the U.S. and its allies, it is not, at least, on the Soviet side [4-hop LOOP on India]. With wise action by us, we can hope that in the future India will draw closer to the anti-Communist world.

3. Technological Potential: The high attainments in science and technology of our major free-world allies add to our ability to compete successfully in nuclear age technology with the Sino-Soviet Bloc. British, German, French, Italian, Scandinavian, and other free scientists have repeatedly shown their ability, especially in pure science and research. In fact, we are indebted to Western European scientists [EG] for a great many of the basic scientific ideas we have used. We have then developed them further in many cases to help the current high level of our defense strength and our high standard of living. Great Britain has detonated both atomic and hydrogen bombs, while France appears to have the capability of doing so in the very near future. [NB! enthusiasm for spread of nuclear weapons.]

4. Ideological Attributes: Our major allies are dedicated to the preservation of freedom, an attitude which gives them an elan vital which is not present among the captives of the Sino-Soviet Bloc. Ours is a free association, not a satellite relation. ["Freedom", but no mention of liberal democratic political system till toward the end.]

With all of this, what should be done to mobilize our strength?

5. As to leadership, major problems of maintaining a unity of design among those allied with us include different views as to vital interests and dangers thereto (witness the Suez war [ID]), nationalism (witness the Algerian dilemma [ID]), and disagreement as to the types and sizes of forces that are needed for the defense of the free world.


There is fundamentally a problem of political leadership —convincing the people of the dangers to be faced and methods needed—within each Allied country. This is a problem of convincing people of the need of sacrifice of some present comforts in order to assure survival. In all our national experience, the people will respond if they are led boldly and know the facts. You are all familiar with recent steps by the President and Vice-President to this end.

2. Our decision and policy-making systems need strengthening. Although we are dedicated to the ideal of democracy, we realize that there are present in the democratic systems certain difficulties absent in totalitarian systems. The U.S.S.R., without need to consider the wishes of its people, can assign priorities to projects that best serve the Soviet leadership. In a democratic nation the immediate wishes and well-being of its people usually must be given first consideration. An excellent example of this can be observed in this year's attempt by the administration and Congress largely to approach the problem of military defense from the standpoint of the budget, holding down military expenditures to an arbitrarily determined figure in order to try to satisfy, too soon perhaps, a prosperous people's desire for tax cuts and less government in daily life. I think it can be fairly said that events of recent weeks [ID] have raised considerable doubt as to any possibility of tax reductions in the near future, and, again in this sense, Sputnik and other influences have initiated a major change in the political state of mind. This sort of basic change, however, within a single nation is much simpler than in an alliance of sovereign states.

3. Then, how make the best selection of weapons systems? Of utmost importance is the determination of the types of war that we must be prepared to fight. Should we concentrate almost completely on the worst possible case—namely, total war, with the danger of either turning all aggressions, however small, into a large-scale nuclear holocaust through massive retaliation, or should we passively bow to events? Should we operate under the premise that different threats will require different responses? If our policy is one of graduated deterrents, how many weapons systems should we concentrate upon at any one time? Other questions which must concern us are, "What should be the optimum balance between nuclear and conventional forces?" "What weapons systems will our budgetary restrictions allow us to develop fully?" And, again, "How and to what extent should we share developments in this area with our allies?"

These questions in turn lead to the subject of management improvement. Whatever the answers to the questions raised above may be, if we are to have the essential defense measures, improvement of our defense organization along three lines seems to be required. First, to help the Secretary of Defense in his job as deputy to the Commander in Chief he must be given an improved organization to cope with his infinitely difficult job. The existing complex system of assistant secretaries and joint committees tends to delay decisions until inter-service agreement can be reached. It would seem useful to develop a staff



immediately responsible and loyal to the Secretary to aid him in obtaining and weighing relative views of the services and commanders and facilitate prompt decision. This type of staff might well help to reach the hard decisions for taper-off or elimination of less fruitful weapons systems, and thus provide the only real source of major opportunity for savings to offset the increasing cost of new requirements.

Military missions that are, in fact, multi-service jobs can no longer be achieved economically and well by three competing services. Certain missions crossing service lines should be the responsibility of operational commands reporting directly to the Secretary of Defense through his personal staff. The three services could then usefully focus their energies on the indispensable training and logistics activities necessary to make the operational commands more effective. Fundamental to all of our actions would appear to be the necessity of now moving promptly to build an organization to meet modern needs. A good deal of this can be accomplished under existing legislation. Some of these changes, however, would require that the Congress be asked to modify restrictions in the National Security Act and in the Organic Acts establishing the three services. These restrictions now perpetuate organizations designed for another era and deny responsible executives the opportunity to adapt our defense structure to current needs.

Moving to another field, that of non-military defense against prospective nuclear attack, there must, here too, be substantial improvement. Protection of the civil


population would seem to be a national problem requiring a national remedy. In view of that, the present division of responsibility among federal, state, and local governments should be looked at again. As a start, it seems desirable that the Office of Defense Management and the Federal Civil Defense Administration be consolidated and there be a re-allocation of responsibility for related services to the permanent federal departments. Even granting the optimum development of our strength and resources, as outlined above, the best that might be hoped for would be a nuclear standoff at an increasing level of danger and potential destruction. There must be a better way for human beings to live together than this, and deep thought and constant effort should be directed toward achieving this better way. Involved here is the problem of achieving some beginning on the reduction of military forces or, if this is not possible, at least the maintenance of unity among our free-world allies on the problem of arms limitation and control, despite appealing Soviet propaganda on the subject. The arms-inspection schemes which are being suggested to replace disarmament proposals must be examined, and creative new ideas developed. Certainly we have not been successful in past attempts to meet with the Soviets in this field, and it seems obvious that disarmament, as such, is not a fruitful current area of discussion. However, Khrushchev and his associates are constantly making statements about their willingness to control or limit arms, and every effort should be made to determine whether we can make this sort of limitation workable by means of adequate controls, none of which


seems to have been developed to date [ID]. Certainly the enormous value of a truly successful arrangement in this field, even though we have grave doubt as to the reliability of the Russians in carrying it out, should encourage us to continue our efforts.

In conclusion, I would like to set out several points which I hope will be considered in your panel discussions. I believe them to be fundamental to our ability to remain leaders of the free world and to help preserve these opportunities and conditions which we hold dear. They seem to me basic to national security policy and may indicate ways in which usefully to develop peaceful change. I hope you younger people with your energy, your vision, and your courage will be able to point the way to achieving them. We who have labored in these vineyards up to now will, I assure you, support you in any way we can. These are some points which seem to me important:

1. The necessity for renewing our faith in the ideals of our heritage in freedom, in democracy, in human dignity. Our difficulties always tend to be more apparent than our strength and, conversely, our adversaries' strength—perhaps because this is not easily measured by us—tends to be more apparent than their difficulties.

2. The need to renew our will to resist the inroads of world communism. We must be prepared to make the sacrifices that such resistance will entail—economic and military aid, technical assistance, a strong economic and military structure at home. All of these are costly in terms of time, money, and effort, but are surely worth while.

3. The necessity for discarding the myth that


inherently all things American are superior, and for recognizing the value of humility. We must make a major effort to understand other peoples and the revolution about us. Two thirds of the free and uncommitted peoples of the world have a per-capita income of less than two hundred dollars per year, but with the world growing smaller, they have rising expectations which we must help them to meet in some degree, in our own interest as well as theirs [EG].

4. Willingness as a people to analyze the problems besetting us in a more sophisticated manner, to realize that they are more complicated than at first meets the eye, to understand that our policy must transcend immediate short-term interests in order to serve our national interests in the long run.

5. The necessity of approaching our security problems from a practical as well as a moral standpoint. We must attempt to get away from the strange dichotomy with which we have traditionally viewed force, refusing to consider it except as a last resort, then approaching it in a crusading manner with a "punish-the-bandit" view which has been prevalent in our recent conflicts.

6. To use our normal strength to help create the kind of a world in which the basic human values can flourish. We cannot stand aloof on the great issues that seize mankind. We must work tirelessly—bilaterally, through regional organizations and through the U.S. [?UNO?] —to remove sources of discord, to promote economic co-operation and growth, and to assure the world of our dedication to the ideals we profess.


We have the means to do these things, and, if we have the wisdom to undertake them, I believe the spirit will support them, and we and all men can have a decent, peaceful, hopeful world.