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Page 136 States, could be more rapidly and completely switched over to war production. Operating on interior lines of communication, and with a huge investment pro- gramme and organised fifth columns in most of the surrounding countries, Russia therefore remains a formidable menace to each of her neighbours, and in spite of her relative economic weakness she is far less open to economic pressure from outside than Germany was.

3. We have not been able to find any inconsistency between current estimates of the U.S.S.R.'s military potential and her economic resources so far as they are known. The latter appear adequate now for a major war of short duration; they may not be considered adequate before about 1957 to sustain successfully a major war involving a consistently high rate of wastage.

26th May, 1949.

E. B.

A. V. A.

Terms of Reference

ANNEX A

SOVIET INDUSTRIAL POTENTIAL

1. The purpose of this paper is-

(i) To set out all available information regarding the present and prospective industrial potentials (with special reference to coal, oil, steel, chemicals and non-ferrous metals) of-

(a) The Soviet Union plus Satellites (including the Soviet Zone of

Germany, Finland and North China).

(b) O.E.E.C. countries (other than the United Kingdom) including

their dependent overseas territories.

(c) The United Kingdom and its dependent overseas territories. (d) The United States, Canada and other parts of America not

included in (b) and (c).

(e) The rest of the world.

(ii) To make what deductions may be possible therefrom as to the resources available for armaments in the United Kingdom and the U.S.S.R. having regard to the needs of economic reconstruction and expansion and to the maintenance and development of standards of living regarded as reasonable in each case.

Summary of Conclusions

2. The production of basic industrial commodities in the Soviet Union and States allied to it is substantially inferior to the production of these commodities in O.E.E.C. countries. Compared with the production of the Commonwealth and the United States the inferiority of that of the U.S.S.R. is even more marked. This disparity between the "Red Bloc" and O.E.E.C. countries may largely disappear by 1960, even if the latter can reach and maintain the industrial targets which they have set themselves for 1952-53. The U.S.S.R. will, however, even in 1960 remain greatly inferior to the Commonwealth and the United States in productive resources.

3. No satisfactory estimates are available of the proportions of the basic industrial commodities which are currently devoted to armaments production, but it may be assumed that they are small, even in the U.S.S.R. It is possible that the U.S.S.R., owing to the less complicated structure of its economic system, would be able rapidly to switch a greater proportion of such resources to arma- ments production than could the United Kingdom or the United States.

4. The industrial strength of the U.S.S.R., the United Kingdom and the United States can, however, best be measured by their total industrial production and national income. In this the U.S.S.R. has a preponderance over the United Kipage 36 was 50 per cent. as measured by national income bgt produces

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