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Full text of "Communist economic warfare. Consultation with Robert Loring Allen"

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COMMUNIST ECONOMIC WARFARE 



CONSULTATION WITH 
Dr. Robert Loring Allen 

COMMITTEE ON UN-AMERICAN ACTIVITIES 

HOUSE OF REPRESENTATIVES 

EIGHTY-SIXTH CONGRESS 

SECOND SESSION 



XJ 







APRIL 6, 1960 
(INCLUDING INDEX) 




Printed for the use of the Committee on Un-American Activities 



81038" 



UNITED STATES 

GOVERNMENT PRINTING OFFICE 

WASHINGION : 1960 



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AUG 2 4 '62 d.'-' 




COMMITTEE ON UN-AMERICAN ACTIVITIES 
United States House of Representatives 

FRANCIS E. WALTER, Pennsylvania, Chairman 

MORGAN M. MOULDER, Missouri DONALD L. JACKSON, California 

CLYDE DOYLE, California GORDON H. SCHERER, Ohio 

EDWIN E. WILLIS, Louisiana WILLIAM E. MILLER, New York 

WILLIAM M. TUCK, Virginia AUGUST E. JOHANSEN, Michigan 

Richard Arens, Staff Director 

II 



r4 



Of 



CONTENTS 



Page 

Synopsis - -- 1 

April 6, 1960: Consultation with Dr. Robert Lorlng Allen _. 5 

Index, * 

III 



Public Law 601, 79th Congress 

The legislation under which the House Committee on Un-American 
Activities operates is Pubhc Law 601, 79th Congress [1946], chapter 
753, 2d session, which provides: 

Be it enacted by the Senate and House of Representatives of the United States 
of America in Congress assembled, * ♦ * 

PART 2— RULES OF THE HOUSE OF REPRESENTATIVES 

Rule X 

SEC. 121. STANDING COMMITTEES 

17. Committee on Un-American Activities, to consist of nine Members. 

Rule XI 

POWEKS AND DUTIES OF COMMITTEES 
* ft * * * * * 

(q) (1) Committee on Un-American Activities. 

(A) Un-American activities. 

(2) The Committee on Un-American Activities, as a whole or by subcommit- 
tee, is authorized to make from time to time investigations of (i) the extent, 
character, and objects of un-American propaganda activities in the United States, 
(ii) the diffusion within the United States of subversive and un-American propa- 
ganda that is instigated from foreign countries or of a domestic origin and attacks 
the principle of the form of government as guaranteed by our Constitution, and 
(iii) all other questions in relation thereto that would aid Congress in any necessary 
remedial legislation. 

The Committee on Un-American Activities shall report to the House (or to the 
Clerk of the House if the House is not in session) the results of any such investi- 
gation, together with such recommendations as it deems advisable. 

For the purpose of any such investigation, the Committee on Un-American 
Activities, or any subcommittee thereof, is authorized to sit and act at such 
times and places within the United States, whether or not the House is sitting, 
has recessed, or has adjourned, to hold such hearings, to require the attendance 
of such witnesses and the production of such books, papers, and documents, and 
to take such testimony, as it deems necessary. Subpenas may be issued under 
the signature of the chairman of the committee or any subcommittee, or by any 
member designated by any such chairman, and may be served by any person 
designated by any such chairman or member. 

Hf ***** * 

Rule XII 

LEGISLATIVE OVERSIGHT BY STANDING COMMITTEES 

Sec. 136. To assist the Congress in appraising the administration of the laws 
and in developing such amendments or related legislation as it may deem neces- 
sary, each standing committee of the Senate and the House of Representatives 
shall exercise continuous watchfulness of the execution by the administrative 
agencies concerned of any laws, the subject matter of which is within the jurisdic- 
tion of such committee; and, for that purpose, shall study all pertinent reports 
and data submitted to the Congress by the agencies in the executive branch of 
the Government, 

rv 



RULES ADOPTED BY THE 86TH CONGRESS 

House Resolution 7, January 7, 1959 

• • » * * • • 

Rule X 

STANDING COMMITTEES 

1. There shall be elected by the House, at the commencement of each Con- 
gress, 

(q) Committee on Un-American Activities, to consist of nine Members. 

* « * Id"* * * 

Rule XI 

POWERS AND DUTIES OF COMMITTEES 

18. Committee on Un-American Activities. 

(a) Un-American activities. 

(b) The Committee on Un-American Activities, as a whole or by subcommittee, 
is authorized to make from time to time investigations of (1) the extent, char- 
acter, and objects of un-American propaganda activities in the United States, 
(2) the diffusion within the United States of subversive and un-American prop- 
aganda that is instigated from foreign countries or of a domestic origin and 
attacks the principle of the form of government as guaranteed by our Constitu- 
tion, and (3) all other questions in relation thereto that would aid Congress 
in any necessary remedial legislation. 

The Committee on Un-American Activities shall report to the House (or to the 
Clerk of the House if the House is not in session) the results of any such investi- 
gation, together with such recommendations as it deems advisable. 

For the purpose of any such investigation, the Committee on Un-American 
Activities, or any subcommittee thereof, is authorized to sit and act at such times 
and places within the United States, whether or not the House is sitting, has 
recessed, or has adjourned, to hold such hearings, to require the attendance 
of such witnesses and the production of such books, papers, and documents, and 
to take such testimony, as it deems necessary. Subpenas may be issued under 
the signature of the chairman of the committee or any subcommittee, or by any 
member designated by any such chairman, and may be served by any person 
designated by any such chairman or member. 

« * * « * * 4c 

26. To assist the House in appraising the administration of the laws and in 
developing such amendments or related legislation as it may deem necessary, 
each standing committee of the House shall exercise continuous watchfulness 
of the execution by the administrative agencies concerned of any laws, the subject 
matter of which is within the jurisdiction of such committee; and, for that 
purpose, shall study all pertinent reports and data submitted to the House by 
the agencies in the executive branch of the Government. 



SYNOPSIS 

The Kremlin regards economic warfare as a weapon of conquest, 
Dr. Robert Loring Allen, specialist in international trade, stated in 
the accompan3-ing consultation with the Committee on Un-American 

Activities. ,,•,/-, 

In response to the question as to the role trade plays m the Com- 
munist drive for total world domination, Dr. Allen responded: 

I think it plays a very important role. I think it may 
play even the most important role. 

In some ways military action is now barred because of the 
destructive characteristics of modern weapons. At any rate, 
military action is a very risky proposition and, if imdertaken, 
might well result in the destruction of communism, as well 
as the destruction of communism's enemies. 

Ideologically there are certain limitations to what can be 
done with communism. Western concepts of individual 
freedom are so fundamentally hostile to Communist ideology 
that the chances of really converting large segments of man- 
kind may well have severe limitations in the foreseeable 
future. 

This leaves only a few things that the Soviet Union can 
depend upon to carry forward its program of ultimate world 
domination, and certainly one of the things they can do, one 
of the things that appears neutral, is trade. 

Now trade is a matter of machinery and tractors and 
trucks and manganese ore. AU of these things presumably 
have no ideological implications. It is done in dollars and 
cents and appears to be a fairly rationalistic type of operation. 

I think that the Soviet Union may weU be increasingly 
looking to trade as a way to carry influence where ideology 
cannot work, where military action is inadvisable, and where 
direct political pressure — where the possibihty for direct 
political pressure — is not feasible as a weapon of conquest. 

In the Kremlin's eyes, the goal of world communism can 
be achieved by a variety of methods: Economic, political, 
ideological, military, psychological, and other kinds of 
activities. To the extent that the West is able to put up 
defenses against one or another of these forms of conquest, 
the Kremlin will be forced to turn to another. 

In the military and ideological field, I personally think that 
the West is not in a particularly vulnerable position. Many 
underdeveloped countries, however, continue to be vulner- 
able to ideological pressure, and the whole world remains 
extremely susceptible to economic and psychological warfare. 
These last two appear to me to be the most important planks 
at the moment in the Communist compaign for world 
domination. This does not mean that the leaders of the 
Communist bloc will not resort to military force if they 

1 



2 COMMUNIST ECONOMIC WARFARE 

consider it to be in their interest, or that they will not use 
any weapon that comes to hand if it seems to suit them. It 
means simply that at this time it appears that the cheapest 
and the prospectively most profitable methods for the 
advancement of communism appear to be in the economic 
and psychological realm. 

Discussing the objectives of Soviet economic warfare, Dr. Allen 
continued: 

It is not at all necessary that countries go Communist or 
are taken over by a Communist Party so long as the funda- 
mental elements of sovereignty are transferred from that 
country to the Soviet Union, which is simultaneously the 
fountamhead of communism and a great power in the world. 

The ultimate objective is the maintenance of a Communist 
elite, using whatever resources — political, economic, and mili- 
tarj^ — that are available throughout the rest of the world, 
which they hope will be under their control for their own 
benefit. At the moment this benefit resides in a small por- 
tion of the Russian people. 

The balance of bargaining power in international agreements be- 
tween the Communist bloc and the free world decisively favors the 
Soviet Union, Dr. Allen stated. He continued: 

The problem is simple. A trade negotiator for the Soviet 
Union represents the entire power of the Soviet Government, 
and yet he is dealing with an obscure importer from a prov- 
ince town in France. 

Clearly, in terms of the importance of these people at the 
bargaining table, a Soviet negotiator can speak with much 
more authority. There has been a realization of this to some 
extent, and the Soviet Union has not in many cases pursued 
its advantage as much as it could. The danger in the situa- 
tion resides in the fact that they are not even, in most cases, 
aware of this imbalance in bargaining power and uncon- 
sciously can overwhelm private traders in these negotiations. 

In discussing the use by the Communists of technicians and trade 
specialists as espionage agents, Dr. Allen stated: 

One thing about this espionage aspect is that Soviet trade 
provides an opportunity for the Soviet Union to acquh'e in- 
formation about their trading partners of considerable im- 
portance. For example, when a country applies for a loan, 
the Soviet Union, just like any creditor or potential creditor, 
wants to know something about what the loan is being made 
for. So they are told, sometimes in great detail, exactly what 
the situation is in the country. And this is a source of in- 
formation — not necessarily espionage in the cloak-and-dagger 
sense, but industrial and commercial information — which is 
of immense intelligence value to the Soviet Union. 



COMMUNIST ECONOMIC WARFARE 3 

In response to a question regarding the nse by the Communists of 
trade technicians as poKtical propagandists, Dr. Allen continued: 

There is no way to avoid it. These are people, and they 
represent fii'st the Soviet state, and they also represent com- 
munism in the countries. Whether or not they get out on 
soap boxes and deliver speeches is quite another matter, al- 
though there has been some of that. Certainly the presence 
of these people is given an outsized display, particularly in 
the miderdeveloped countries. The press heralds the com- 
ings and goings of trade delegates and things of this sort with 
much fanfare. Every statement they make becomes im- 
portant to the press, so there is this element of psychological 
warfare. 

I sometimes have the feeling that what we are calling eco- 
nomic warfare is just as much psychological warfare as it is 
economic warfare; that the economic substance of much of 
this is pretty slender, and they are willing to undertake a 
variety of things, just simply for the psychological advantage. 

Dr. Allen characterized the threat of Communist economic warfare 
as follows : 

I think it is what we have been talking about, the psycho- 
logical aspect of it, the possibility that the Soviet Union can 
gradually work itself into positions of influence with tradmg 
partners, to the point where the tradmg partners gradually 
have their sovereignty eroded away, where they no longer 
are in complete control of their foreign policy. 

A good example is, I think, the problem of the admission 
of Red China to the UN. This is a big deal to the Com- 
munist area. They think this is terribly unportant, and 
everywhere they can, they are emphasizing the importance of 
the People's Republic as opposed to the Nationalists in the 
UN. Over a period of years I think Soviet economic activities 
have influenced some coimtries. 

Clearly Egypt has recognized Red China, and now favors 
the acceptance of the People's Republic credentials as op- 
posed to those of the Nationalist Government. This is the 
danger, that a coimtry unwittingly, perhaps imwillingly, will 
give up things in the field of international affairs that are 
harmful to the free world. 



C03IMUNIST ECONOMIC WARFARE 



WEDNESDAY, APRIL 6, 1960 

United States House of Representatives, 

Committee on Un-American Activities, 

Washington, D.C, 
consultation 

Tho following consultation with Dr. Robert Loring Allen, of Eugene, 
Orcg., was held at 10:40 a.m., in room 225, Old House Office 
Building, Washington, D.C. 

Committee members present: Representatives Francis E. Walter, 
of Pennsylvania, chahman (presidmg), and Gordon H. Soberer, of 
Ohio. 

Staff members present: Richard Arens, staff director, and Fulton 
Lewis in, research analyst. 

The Chairman. We will come to order. 

Will you rise please, Dr. Allen, and be sworn. 

Do you solemnly swear that the testunony you are about to give 
will be the truth, the whole truth, and nothing but the truth, so help 
you God? 

Dr. Allen. I do. 

STATEMENT OF DR. ROBERT LORING ALLEN 

Mr. Arens. Kindly identify yourself by name, residence, and 
occupation. 

Dr. Allen. My name is Robert Loring Allen. I am a resident of 
Eugene, Oreg., where I am an associate professor of economics at the 
University of Oregon. 

Mr. Arens. Doctor Allen, would you be good enough to give us 
a brief sketch of your personal background, with special emphasis on 
your training and fields of specialization? 

Dr. Allen. I am a professional economist, specializing in inter- 
national trade. My doctorate was at Harvard, and my undergrad- 
uate work was at the University of Redlands. 

After my professional training I worked for the United States 
Government as an intelligence officer for 5 years. The precise details 
of my work are classified, but in general I performed economic re- 
search on the Soviet Union and Eastern Europe, with particular 
reference to the structure, nature, and characteristics of the economy 
and foreign trade. 

After my Government service I was an associate professor of eco- 
nomics at the University of Virginia for 3 years. There I was the 
director of the Soviet bloc foreign economic relations project in the 
Woodrow Wilson Department of Foreign Affairs. The purpose of 
that project was to undertake a systematic investigation of foreign 

5 



6 COMMUNIST ECONOMIC WARFARE 

economic activities of the Soviet Union, Eastern Europe, and Red 
China, with particular reference to then- activities in underdeveloped 
countries. Over a period of 3 years we conducted very intensive 
research, using sometimes as many as 15 researchers, and produced 
a volume of research, amounting to some 55 books, articles, pamphlets, 
published largely in the learned journals and by private publishers. 

Since my experience in the University of Virginia I have been at the 
University of Oregon. 

I have testified before congressional committees, have been a 
consultant to the United States Chamber of Commerce, and have 
commented at professional organizations in my specialization. 

Mr. Arens. How does Communist-bloc trade compare with free- 
world trade in volume? 

Dr. Allen. It is relatively small. The Soviet Union, Eastern 
Europe, and Red China combined, exported approximately $12 
billion worth of goods in 1958. This compares to free- world exports 
of $98 billion. 

When the intrabloc trade is eliminated — that is, the trade between 
Red China and the Soviet Union, between Czechoslovakia and 
Poland — when that is eliminated, the Soviet-bloc trade amounts to 
about 3 percent of free-world exports on the one side, and free-world 
imports on the other. 

Mr. Arens. What significance do you attach to this relatively 
small percentage of trade? 

Dr. Allen. In order to avoid being misled by the smallness of the 
numbers, let me point out that it is not alwa3^s appropriate to just 
simply regard the aggregate quantity of trade in comparison with the 
trade of the United States or some other country. 

Soviet trade is specifically oriented. It is undertaken for a highly 
specific purpose, usually both economic and political in nature, and 
has the characteristic of magnifying itself because of its specificity 
and because of the nature and character of the operations of Soviet 
trade. It is conducted through state trading enterprises, which are 
instruments of the government under a general policy of bilateralism, 
that is, an effort to balance trade with every individual country with 
whom the trade is conducted, not balancing trade among all countries 
necessarily. By carefully selecting trading partners, by the use of 
moderately effective propaganda, and through the organs of the 
Communist Party in the trading partners, the Soviet Union makes its 
trade more important than it is. 

In the countries with whom the Soviet Union trades the significance 
of a million dollars' worth of Soviet trade is far beyond the significance 
of a million dollars of French trade or American trade or any other 
particular country. It does double duty, or triple duty, in the service 
of the Soviet Union. 

Mr. Arens. Why, and how? 

Dr. Allen. A state trading country has an institutional setup which 
automatically considers all of the factors affecting the state: military, 
political, strategic, psychological, ideological — all these things are 
imbedded in the state trading mechanism. Private traders, on the 
other hand, are interested in a profit, very frequently without regard 
to the national interest of the country of w^iich they are citizens. 
But state trading is different, drastically dift'erent. All of these 
people, all of the trading negotiators, all of the participants in Soviet 



COMAIUNIST ECONOMIC WARFARE 7 

trade, are in the service of their g:overnment, and are there to serve 
the interests of the group in control of their country. 

Now, in some cases this interest is economic in nature. In other 
cases it would be political. In other cases it would be military. 

Mr. Arens. Can you cite examples? 

Dr. Allen. Much of their trade, for instance, in Western Europe 
is economic. That is, they need the manufactured goods of Vv'estern 
Europe, and they sell to Western Europe whatever they think they 
can get along without the best. It is fundamentally economic. In 
other cases it is obviousl}^ political and strategic in nature. 

Let us consider their trade with Egypt, for an example. 

Russia, pre-dating the Communist control, has always had an im- 
mense interest in the Middle East, not only because of the oil, but also 
because of the warm water ports and because of the general geopolitical 
characteristics of the Middle East. 

They tried right after the war, as you recall, to get into Turke}^, to 
set up military bases in Turkey. Turkey rather firmly told them no. 

They set up an autonomous Soviet republic, Azerbaijan, in north- 
ern Iran, and the United States and Iran objected very vigorously, 
and they withdrew. 

Then they became embroiled in their problems in Eastern Europe, 
where they were intent on setting up a buffer state system. They 
became interested in the communization of China. And then, of 
course, the Korean war forced upon them a degi-ee of military pre- 
paredness that they might not have undertaken in any case at that 
time. So that it was not really until 1954 that they became interested 
rather intensely again in the Middle East. 

By that tune Turkey and Iran were our firm allies. By that time 
also Iraq was allied with the British and the United States. 

The only vulnerable position in the Middle East then was Egypt, 
which had just gone through a revolution, which had displayed 
rather intense anti-Western feelings, and which had an ambitious 
leader — ambitious for himself and ambitious for his country. The 
result was the striking up of a trade relationsliip, resulting in a serious 
imbalance of arms deliveries to the Middle East by the Soviet Union 
and large-scale trade, which now amounts to more than one-half of 
Egypt's trade, with the Soviet Union, Eastern Europe, and Red China. 

]\Ir. Arens. How do you interpret the underlying reason for this 
trade? 

Dr. Allen. I think it would be foolhardy to say that this is funda- 
mentally economic. The Soviet Union is buying cotton from Egypt. 
But the Soviet Union is a major producer of cotton and has rather 
specific plans for the expansion of cotton production inside the Soviet 
Union. It is difficult, if not impossible, to make a case that the 
Soviet bloc needed Eg3^ptian cotton. Indeed, as it can be observed, 
Egyptian cotton is showing up in France and England via Soviet-bloc 
countries. Czechoslovakia buys it from Alexandria, but instead of 
going to Czechoslovakia it goes to France, sometimes even at a dis- 
count over the price which Czechoslovakia originally paid. They 
have probabl}' enlarged their stocks of cotton and surplus on hand. 

But in any case, the trade of the Soviet Union and the rest of the 
Communist bloc with Egypt cannot be justified strictly as an econom- 
ic proposition. Perhaps some trade, yes. But the present volume 
of trade is rather political and strategic in nature. 



8 COMMUNIST ECONOMIC WARFARE 

Egypt has been cast in the role of an important neutralist power 
and a leader among the neutralist powers. By exercising more and 
more influence over Nasser and over Egypt, the Soviet Union hopes 
to weaken the influence of the United Staples, Great Britain, and France 
in the Middle East and would eventually, I think, like to reduce the 
freedom of action of Egypt in international affairs to the point where, 
while Egypt would remain a sovereign state, the Soviet Union would 
loom so large in all decisions of the state that it would not in fact be an 
independent country. 

Mr. Arens. Do you have another example? 

Dr. Allen. Another example is Iceland. In this case it is very 
interesting to note the relationship between the local Communist 
Party and Soviet foreign trade. 

In 1950 the Soviet Union did not trade with Iceland. This was 
after a period of trade in the late 1940's when Iceland had a Com- 
munist cabinet minister. When the Communist cabinet minister was 
dismissed, Soviet trade was also dismissed. Later when a Communist 
cabinet minister came back, Soviet trade has thrived again, and now 
approximately one-third of Icelandic exports goes to the Soviet Union 
and Eastern Europe. Iceland has just undertaken a major economic 
and political reform. The consequences for Soviet trade are not 
known yet. 

Soviet bloc Icelandic trade is not large in amount — perhaps $50 
million — and it is pretty clear that this amount of fish to tlie Soviet 
Union is nothing. The Soviet Union is a major fish producer in the 
world, and this is a drop in the bucket compared to Soviet consumption 
of fish. 

When it became obvious that the United States Vvas going to insist 
upon an air base in Iceland, when the ties between Iceland and the 
United States were firm, the Soviet Union did not have too much 
interest in that trade. 

But now approximately 20 percent of Iceland's electorate votes 
Communist, and there is a thriving legal Communist Party. 

The air base issue is a matter of great controversy. And I think 
the Soviet Union very clearly is using its trade to attempt to influence 
Iceland to withdraw from NATO, which would mean the elimination 
of the air base at Reykjavik, as well as the introduction of much more 
elaborate economic planning within the Icelandic economy. 

Mr. Arens. Do 3'ou have another illustration. Doctor? 

Dr. Allen. Finland is a most interesting example. 

Finland lost a war to Russia, and one of the results of that war was 
very large Finnish reparation paj^ments, a significant proportion of 
the Finnish total product, paid over a period of years in the late 40's. 

But more than just the reparations, the Soviet Union insisted upon 
the delivery of specific items. These items included prefabricated 
housing and shipbuilding. 

At the time the Soviet Union was insisting upon this kind of deUvery 
on reparations, Finland did not have an industry which could put out 
prefabricated houses. So Finland, in efl"ect, built an industry in order 
to pay its reparations. At the end of reparations they had an industry 
which was high cost and could not produce competitive products for 
Western Europe. The only market for these products was in the 
Soviet Union. 



COMMUNIST ECONOMIC WARFARE 9 

Trade lias also thrived between Finland and the Eastern European 
countries. Trade has varied, but it has always been a significant 
proportion of Finnish trade, roughly one-third of Finnish exports 
going to the Soviet Union and Eastern Europe, and approximately 
the same proportion of their imports. 

The Soviet Union was apparently willing to tolerate an independent 
Finland. It is very interesting to speculate on the reasons why. 

They were not w^illing to tolerate an independent Czechoslovakia. 
They could probably have done the same thing to Finland that they 
did to Czechoslovalaa in 1948, but they did not. Perhaps the reason 
is that they thought they could get more out of Finland in reparations 
and in various forms of assistance by having them an independent 
country. Perhaps they feared an even greater public reaction than 
happened in Czechoslovalda. 

We in this country, for instance, have a very strong emotional 
attachment to Finland, I think. And if Finland had been on the 
timetable after Czechoslovakia, the reaction which would have been 
called forth from the West might have been rather severe, and perhaps 
the Soviet Union did not choose to face that reaction. 

]\Ir. Arens. What is the actual status of Finland? 

Dr. Allen. Ostensibly Finland is a free country. In fact, Finland 
is an economic satelhte of the Soviet Union. I can illustrate it in this 
way: 

In December 1958, after a long period of disagreement with the 
Soviet Union over the absence of any Communist representation in 
the Finnish Government, the Soviet Union became rather obviously 
and specifically dissatisfied, and it resulted in the fall of the Fagerholm 
government in December 1958. The Soviet Union had stopped its 
orders for Finnish goods; it had refused to reenter trade negotiations 
which were to have begun in October, and it made it clear that some 
very basic readjustment was going to be necessary. 

I think from our point of view it is pretty clear that the readjust- 
ment the Soviet Union wanted was Communist representation in the 
government of Finland. 

"Roughly 25 percent of the Finnish electorate votes Communist. 
Roughly 25 percent of the Finnish parliament is Communist. There 
is no open, known Communist representation in the executive depart- 
ment, or government itself. 

When President Kekkonen of Finland went to Moscow he nego- 
tiated at length, agreed to accept a rather large ruble loan, made a 
variety of other concessions, publicly criticized the Finnish press for 
criticizing the Soviet Union, and made a variety of other amends to 
the Soviet Union. But, he was able to forestall having a Communist 
in the government. 

It is clear, though, as a result of this incident, that Finland is 
not a free agent. When the Soviet Union chooses to put the screws 
on, Finland has no choice but to knuclde under. They are so de- 
pendent upon commerce with the Soviet Union — for instance, all of 
their petroleum, most of tlieir gi-ain, all of their fertilizer, all of their 
cement, come from the Soviet area — they cannot afford not to get 
along with the Soviet Union under the present circumstances, and 
the Soviet Union has made it clear that this commerce is not just 
plain commerce. It is also an avenue for eitlier political amity or 
political animosity between the two countries. 



10 COIVIMUNIST ECONOMIC WARFARE 

IMr. Arens. Have you made a study, Doctor, of the evidence bear- 
ing on the question of political-economic integration of the satellite 
states with the Soviet Union? 

Dr. Allen. Yes. Immediately following World War II the Soviet 
Union maintained its military preeminence in a number of East 
European countries, including Germany, Poland, and so on, but 
almost at once these countries were required to make to the Soviet 
Union very large-scale deliveries of industrial equipment. 

The Soviet Union at the end of the war was a very weak nation, 
economically. They needed vast sums of capital. They negotiated 
with the United States for a loan — and this never developed. 

In addition to the idea that the Soviet Union needed a buffer be- 
tween itself and the free world, the Soviet Union definitely looked to 
Eastern Europe as a source of capital goods and of economic assistance 
in Soviet postwar reconstruction. 

Trade of the East European countries before the war, such coun- 
tries as Poland, Czechoslovakia, was predominantly with Western 
Europe, with Germany, with Italy, with France, with the United 
Kingxlom. Trade between Eastern Europe and the Soviet Union was 
negligible. 

But at the end of the war the pattern was just reversed. The trade 
of all of these countries became predomuiantly with the Soviet Union, 
and over a period of time this fanned out so that the trade of any 
given East European country became distributed among tlie other 
East European countries and the Soviet Union, and then later with 
Communist China. 

They were not sufficiently secure, I don't believe, in their political 
position through the local Communist Parties to be able to rely on 
just the political ties, and the economic ties were of very great sig- 
nificance. It means that today, for instance, it is unrealistic to think 
of an East European country trying to get along without tlie Soviet 
Union unless somebody else is prepared to step in and occupy the 
position that the Soviet Union occupies in that country's trade. 

In every one of these countries between 50, 75, and 90 percent of 
their trade is with the Soviet Union, the other satellite countries, and 
Eed China. 

The economic relationships are increasingly being formalized. For 
instance, all of them adopted centralized planning as one of the initial 
steps. The next step beyond that was to coordinate their plans, so 
that they begin and end at the same time. 

The step beyond that was that various sectors of the economy 
began highly specific cooperation, so that there would be a specializa- 
tion, for instance, in chemicals, in East Germany; in certain kinds 
of manufacturing production, in Czechoslovakia; in petroleum, co- 
operation between the Soviet Union and Rumania; coal, of course, 
cooperation between the Soviet Union and Poland. 

Mr. Arens. Is there any formal coordinating entity? 

Dr. Allen. There exists an organization, the Council for Mutual 
Economic Assistance, set up in the late 1940's, which continues to 
grow in importance and strength, to coordinate all of the activities of 
the Soviet-East European area and make them more or less a single 
economy, even while they retain national identity and certain of the 
trappings of sovereignty. They are, in fact, enmeshed in the Soviet 
economy and the Soviet complex on the continent of Europe, increas- 



COMJVIUNIST ECONOMIC WARFARE H 

ingly to the degree that they are not really independent, not even in a 
nominal sense. The}' are integrated in a very real sense, and the po- 
litical domination, of course, continues with political decisions being 
preeminent. . . " 

It did not bother the Soviet Union to incur fairly significant eco- 
nomic losses in Hungary in order to see to it that Hungary did not 
acquire the degree of freedom that she, Hungar^^ sought. 

]\Ir. Arens. Would you please, Doctor, comment on the respective 
size and characteristics of Communist-bloc aid as compared with 
free-world aid? 

Dr. Allen. Communist aid is a Johnnie-come-lately in the aid 
field. It was not really initiated until 1955 and, in many w^ays, is an 
imitation or an attempted imitation of what the United States has 
been doing since the end of the war. It is pretty clear that they felt 
that the United States was gaining very significant political advan- 
tages in the cold war as a result of its aid program, particularly the 
Marshall Plan. This hurt the Soviet Union, since it hoped to gain 
territory in Western Europe because of Western Europe's weakened 
condition following the war. The Marshall Plan helped to foil this 
plan. 

So the Soviet Union developed an aid program of its own, having 
unique characteristics, oriented primarily to the underdeveloped 
countries. And in the course of, let us say 4 years, the Soviet Union, 
Eastern Europe, and Red China have loaned approxhnately $3 billion 
to underdeveloped countries. 

Mr. Arens. Which countries are the principal recipients of their 
aid? 

Dr. Allen. The principal recipients are: Egypt, Afghanistan, 
Indonesia, India, Iraq, Yugoslavia, Argentina, and some small 
scattered loans to other countries. 

Mr. Arens. Has the $3 billion actually been expended in goods or 
services? 

Dr. Allen. We should be careful about this figure of $3 billion 
which we read about in the press because this represents commitments 
of the Soviet Union or, in other words, lines of credit. They have 
agreed to loan Argentina $100 million. This does not mean that 
Argentina has used $100 million or that the Soviet Union has delivered 
$100 million worth of goods to Argentina. 

In general, the deliveries have lagged considerably behind promises 
to deliver. This is partly understandable on the gi-ounds that it does 
take tune to deliver capital goods and to tool up to provide economic 
assistance. 

We have experienced the same thing in our efforts to assist other 
countries. Their deliveries, it is pretty clear, go beyond this, and 
there are inordinate delays, simply because the Soviet Union is not an 
experienced trader, contmually considers a variety of noneconomic 
considerations in its assistance. And while there are many protesta- 
tions of ''no strings attached," a country which does not retain the 
political friendship of the Soviet Union is frequently abruptly told 
that its economic assistance has been terminated. 

Specifically my estimate is that the Communist bloc had delivered, 
hj the end of 1959, about $400 million of goods on economic account. 
Now this does not include arms. Arms are included in the $3 billion 
figure, but arms deliveries are very rapid because these come from 



12 COMMUNIST ECONOMIC WARFARE 

stocks. They are not manufactured new to fill orders. They come 
from stocks and can be delivered almost overnight. 

Arms deliveries today have probably amounted to as much as $800 
million, primarily to Egypt, Syria, some to Afghanistan, Yemen, 
Iraq, and Indonesia. 

Mr. Arens. How does the aggregate foreign aid of the Communist 
bloc to recipient countries compare with the free-world aid? 

Dr. Allen. In some aggregate sense their assistance is much smaller. 
But remember that Soviet assistance is highly specific and highly 
directed. In Yemen, for instance, there has been no American assist- 
ance, and yet there is Soviet military and economic assistance. In 
Afghanistan, probably the promises of the Soviet Union to deliver 
economic assistance exceed American deliveries. This is true also of 
Egypt. It is not true of India. 

If one had to draw a figure comparable to the $3 bUlion for the last 
4 years for the West, my guess would be that it would be in excess of 
$10 bUlion. But again, the size of the aid is not the important thing. 
The specific characteristics are much more specifically oriented in the 
case of the Soviet Union. 

Mr. Arens. Is the Communist aid directed toward the fulfillment 
of a need of the recipient peoples, or is it du*ected toward the ac- 
complishment of other objectives? 

Dr. Allen. The Soviet Union purports to make economic assistance 
available to countries in accordance with the needs of the recipient. 
But when these are examined in some detail, it turns out that there is 
just as much of the Soviet orientation in their assistance as there is, 
we will say, in Syrian orientation in the assistance. 

The problem is this: Everyone knows that the Soviet Union 
emphasizes industry. Everyone knows that the Soviet Union does 
not consider a nonindustrial project of any particular consequence. 
So that if you want to get money from the Soviet Union, you ask for 
an industrial project. Or you ask for a project that is fancy and 
impressive, like a stadium or some other thing which enables the 
Soviet Union to display its benevolence. These things these countries 
know they can get from the Soviet Union, so they ask for them. 

Now, it is sometimes hard to tell, but it is pretty clear that in many 
cases the spokesmen for these countries do not know the real needs of 
their countries. They have a feeling about what they should have, 
but they have not made a careful economic, geological, engineering 
analysis of their situation to enable them to really determine in any 
detail what it is that their countries require. So they ask for what 
they can get. 

The Soviet Union has done pretty well on this line, of giving them 
what they ask for, so long as what they ask for fits in with what the 
Soviet Union wants to do. 

Mr. Arens. To revert to the proposition of trade, what are the 
leading trading partners of the Communist bloc? 

Dr. Allen. Well, this has two answers: One, the leading partners 
of each country within the Soviet bloc are the other Soviet-bloc 
countries. But then if you cancel out this internal trade, the leading 
trading partners are primarily the West European countries. 

Finland ranks high, the United Kingdom and Yugoslavia rank high, 
among the industrialized complex of Western Europe. 



COMMUNIST ECONOMIC WARFARE 13 

But there is a very sig:nifioftnt expansion of Soviet-bloc trade with 
the nonindustriahzed countries of Asia, Africa, and Latin America. 
It is growing faster than Soviet-bloc trade generally. 

In the earlier days — that is, 1952 to 1956 — it was Eastern Europe 
which was expanding its trade rapidly with the primary producing 
countries. They more or less paved the way for a more recent rapid 
expansion of Soviet trade with Middle Eastern countries, with India, 
with Indonesia, and other countries of this type. 

Mr. Arens. What have been the trends in Communist-bloc foreign 
economic activities in recent years? 

Dr. Allen. A very substantial expansion of trade has been experi- 
enced by the entire Soviet area. From 1950 to 1958 Soviet-area trade 
expanded two and one half times. 

Mr. Arens. Would you define what you mean by "Soviet area"? 

Dr. Allen. Soviet Union, Eastern Europe, and Red China. 

The trade figures out roughly at 25 percent per j^ear. Over the 
same period, free-world trade has expanded at 8 percent per year, 
approximately, so that in the trade sense, the Soviet-area trade is 
gaining ground on free-world trade. 

If 3"ou extrapolate present trends in free-world trade and Com- 
munist trade, by 1975 Communist trade will be one-fourth of free- 
world trade. And by the same sort of simple arithmetic calculation, 
at some predictable date in the near future the Soviet area could be- 
come the leading trading partner of every country in Asia, Africa, and 
Latin America. I would say this could happen w^ithin the next 15 
to 20 3'ears. 

Mr. Arens. What are the motives of Communist-bloc trade and 
aid? 

Dr. Allen. They are economic in the sense that there are deficien- 
cies in tlie Soviet economy, that there are advantages to be had by 
relinquishing lumber for textile machinery. But the motives are also 
political in the sense that the Soviet Union perceives that trade is an 
important avenue of influence over the policies of other countries. 

It is very difficult to separate the economic and political motives. 
We in the West are accustomed to think of trade primarily as economic. 
We do it for reasons of profit. But this concept is ahen to the Com- 
munist ideology, and they look upon trade essentially as an instrument 
of the state. 

Mr. Arens. For what objective? 

Dr. Allen. For whatever objective is paramount to the state at 
the particular time. 

Mr. Arens. For what ultimate objective? 

Dr. Allen. Certaiidy there is little question about the kind of 
world that the Soviet Union wants to have. They want a Com- 
munist world, and they propose to have it. 

Mr. Arens. What role does trade play in the Communist drive for 
total world domination? 

Dr. Allen. I think it plays a very important role. I think it may 
play even the most important role. 

_ In some ways military action is now barred because of the destruc- 
tive characteristics of modern weapons. At any rate, military action 
is a very risky proposition and, if undertaken, might well result in 
the destruction of communism, as well as the destruction of com- 
munism's enemies. 



14 COMMUNIST ECONOMIC WARFARE 

Ideologically there are certain limitations to what can be done with 
communism. Western concepts of individual freedom are so funda- 
mentally hostile to Communist ideology that the chances of really 
converting large segments of mankind may well have severe limitations 
in the foreseeable futiu-e. 

This leaves only a few things that the Soviet Union can depend 
upon to carry forward its program of ultmiate world domination, and 
certainly one of the things they can do, one of the things that appears 
neutral, is trade. 

Now trade is a matter of machinery and tractors and trucks and 
manganese ore. All of these thmgs presumably have no ideological 
implications. It is done in dollars and cents and appears to be a 
fairly rationalistic type of operation. 

I think that the Soviet Union may well be increasingly looking to 
trade as a way to carry influence where ideology cannot work, where 
military action is madvisable, and where direct political pressure — 
w-here the possibility for du-ect political pressure — is not feasible as a 
weapon of conquest. 

In the Kremlm's eyes, the goal of world communism can be achieved 
by a variety of methods: Economic, pohtical, ideological, military, 
psychological, and other kinds of activities. To the extent that the 
West is able to put up defenses against one or another of these forms 
of conquest, the Ki'emlin will be forced to turn to another. 

In the military and ideological field, I personally think that the 
West is not in a particularly vulnerable position. Many underdevel- 
oped countries, how^ever, continue to be vulnerable to ideological 
pressure, and the whole world remains extremely susceptible to eco- 
nomic and psychological warfare. These last two appear to me to 
be the most important planks at the moment in the Communist cam- 
paign for world domination. This does not mean that the leaders of 
the Communist bloc will not resort to military force if they consider 
it to be in their interest, or that they will not use any weapon that 
comes to hand if it seems to suit them. It means simply that at this 
time it appears that the cheapest and the prospectively most profita- 
ble methods for the advancement of communism appear to be in the 
economic and psychological realm. 

Mr. Arens. What sort of world do the masters of the inter- 
national Communist movement envision? 

Dr. Allen. Certainly communism has long since abandoned the 
idea that somehow or other the world would be magically transformed 
into a world in which everyone accepted a Communist faith. 

What the &emlin leaders are in process of doing now with the use 
of communism as a basic tool is acquiring power, power in this world 
at this time by any means, fair or foul, at their disposal. 

Specifically the Soviet Union, I believe, wants to dominate other 
countries, but not necessarily even by the preeminence of a local Com- 
munist Party in every case. 

I can conceive the Soviet Union would be well pleased with a situa- 
tion similar to Finland's relationship to the Soviet Union for Egypt 
or India or Indonesia and other countries. They are not funda- 
mentally concerned with the peoples of India or Egypt or Indonesia. 

The Kremlin! is not basically concerned as to either their personal 
well-being or the content of tlieir thinking, whether they are Com- 
munist, whether they are agnostic, or whether they are Christian. 



COMMUNIST ECONOMIC WARFARE 15 

"Uliat they are concerned with is that India represents power in the 
world, it is a certain land mass, it is a certain group of people, it repre- 
sents productive capabilities, and the Kremlin leaders want to control 
these productive capabdities. They would be satisfied to control 
them with Nehru in power or they would be satisfied to control them 
with a local Communist in power or they would be satisfied to control 
them with an5'one in power, so long as their fundamental goals of 
world control are being pursued in India. 

It is not world communism m the sense of a grandiose Utopian 
communal type of organization and system that the Kremlin leaders 
hope to achieve. They hope to achieve increasing power— pohtical 
power, economic power, military power— to the point where they are 
not, and cannot be, challenged by any other power in the world. All 
sorts of arrangements with other nations are possible under this type of 
thinking. 

It is not at all necessar}" that countries go Communist or are taken 
over by a Commmiist Party so long as the fundamental elements of 
sovereignty are transferred from that country to the Soviet Union, 
which is simultaneously the fountainhead of communism and a great 
power in the world. 

Mr. Arexs. And the ultimate objective is what? 

Dr. Allex. The ultimate objective is the maintenance of a Com- 
munist elite, using whatever resom'ces — political, economic, and 
militaiy — that are available throughout the rest of the w^orld, which 
they hope will be under their control for their own benefit. At the 
moment this benefit resides in a small portion of the Russian people. 

Mr. Arexs. What techniques does the Communist bloc employ in 
hiitiating and developing its trade program? 

Dr. Allen. In its trade with the recently independent countries 
and in initiating trade with countries with whom it has not traded in 
the past, the Soviet Union employs its normal diplomatic personnel, 
either those accredited to the new country, or to neighboring countries. 

As an example, Ghana had barely moved into its offices before an 
ambassador had been appointed and Soviet representation was present 
in the country. And hardly before the paint was dry on the signs in 
the offices, a Soviet trade delegation was in Accra to negotiate a trade 
agreement between the State of Ghana and the Soviet Union. 

The initial point of contact is the diplomatic service. Behind this 
pouit exists echelons of trade delegations and trade negotiators, 
culminating in the Ministiy of Foreign Trade in the Soviet Union, 
which controls all of Soviet foreign trade. 

It must be mentioned that since the Ki-emlin leaders are not highly 
regarded in many places, they have found it advantageous in some 
instances to make their initial contacts and approaches by representa- 
tives of one or more of the more respected East European countries, 
such as Poland and Czechoslovakia. Perhaps the point of contact 
would be the Czech ambassador, followed by Czech trade negotiators, 
and the Czech ^^linistry of Foreign Trade. 

After this trade is established, and perhaps has been conducted 
for a year or more, then the Soviet Union moves in with a similar 
operation. In most cases, however, the initiative is taken by the 
Soviet representatives. 

After trade has been settled down, that is, after trade has been 
conducted for a number of years, in some cases where a country has 



16 COMMUNIST ECONOMIC WARFARE 

faced some dire economic need, they have approached the Soviet 
Union. This is still fairly rare. 

We must keep in mind that the Soviet Union is not an experienced 
trader, it is not a large trader. People do not think of the Soviet 
Union generally in a trading context. It has only been in the last 
few years that you ever read anything in the newspapers about Soviet 
trade. So that whatever the initiative is, it must come from the 
Soviet side. 

I am trying to think of an instance where a country has approached 
the Soviet Union — I do not think of one where the initial approach 
has been by the trading partner. After the trade is established, 
yes. But not the initial approach. 

In instance after instance, Iceland, Burma, Yugoslavia, Egypt, 
India, all of them, the first approach was the Soviet approach. Then 
later, for instance, in the new Indian 5-year plan, which begins in 
1961, the Indians went to the Soviet Union and said, ''We would like 
to have some credit to help fulfdl this plan." And the Soviet Union 
said yes. 

But Soviet trade with India now is half a dozen j^ears old, and there 
is already experience of Indians borrowing from the Soviet Union, 
so they felt free to do this. 

But in the case of Iraq recently, when they broke away from all 
their so-called Western influence, it was the Soviet Union that ap- 
proached Iraq to make a loan to Iraq. Iraq did not take any 
initiative there. 

Mr. Arens. How does Communist trading work? 

Dr. Allen. Partly as I described earlier, through the process of 
trade negotiators, initiated perhaps with the diplomats. It is con- 
ducted within a framework of a bilateral agreement, that is, an 
agreement between the Soviet Union and Argentina, or Brazil, for 
example. This agreement will specify the goods to be exchanged. 
It may specify the precise quantities of goods. And it may specify 
the general level of trade, that is, whether it is going to be $50 million 
a year or $100 million a year. 

This agreement is an intergovernmental agreement, that is, it is 
negotiated between the Ministry of Foreign Trade of the Soviet 
Union, or whatever Communist country is involved, and the trading 
partner's government. 

It does not have the characteristic of a binding legal contract, 
however. Indeed, in most of these agreements there is a provision 
that if a dispute arises it will be arbitrated in the Moscow arbitration 
court. 

This pecuharity of the legal characteristics of Soviet trade has been 
subjected to a great deal of study. The operations in the Moscow 
arbitration court have not been entirely satisfactory to the trading 
partners, and increasingly there is a pressure to have a mixed arbi- 
tration court. The Swedes, for instance, just simply refuse to enter 
a trade agreement where the Moscow arbitration court held final 
authority, and now there is a mixed arbitration court. 

Mr. A.RENS. How does the independent business fi.rm within the 
free-world country that has a trade agreement with the Communist 
bloc get into the picture? 

Dr. Allen. Within the framework of this intergovernmental 
agreement, the free-world country v.ill agree to issue export licenses. 



COMMUNIST ECONOMIC WARFARE 17 

This is usually the extent of the commitment on the part of the 
free-world government. They will not guarantee the delivery of 
goods. They will not carry it on their own account. They will 
agree to make available to exporters and importers licenses Vv'hich 
will permit the trade to take place so that after this agreement has 
been signed, a French exporter of, we will say, automobiles, Avill 
apply for an export license, will be granted such, and he will then 
negotiate directly with the Soviet trade delegation in Paris for the 
purcliase of French automobiles; and at the same time a French 
importer desiring Soviet manganese ore, after the agreement has 
been signed, will apply for an import license, will be granted it, and 
will conduct personal negotiations with the trade delegation to acquire 
the goods. 

^Ir. Arens. What is your appraisal of the balance of bargaining 
power in international agreements between the Communist bloc and 
the free world? 

Dr. Allen. In general it favors decisively the Soviet Union. 
The problem is simple. A trade negotiator for the Soviet Union 
represents the entire power of the Soviet Government, and yet he is 
dealing with an obscure importer from a province town in France. 

Clearly, in terms of the importance of these people at the bar- 
gaining table, a Soviet negotiator can speak with much more authority. 
There has been a realization of this to some extent, and the Soviet 
Union has not in many cases pursued its advantage as much as it 
could. The danger in the situation resides in the fact that they are 
not even, in most cases, aware of this imbalance in bargaining power 
and unconsciously can overwhelm private traders in these negotiations. 

It is for this reason that governments attempt to protect private 
importers and private exporters from the superior bargaining power. 
In many cases there will be a government representative at trade 
negotiations. There will be a coordinating committee within the 
government which will oversee the trade to see to it that the traders 
are not being gouged particularly. 

And in other instances, because of this problem, consortiums are 
formed, combinations of firms which have greater bargaining power. 

You probably noticed in the New York Times a few months ago that 
an American consortium has arranged to sell a textile plant to the 
Soviet Union. One of the reasons for this consortium arrangement 
was to overcome this problem of bargaining strength of the Soviet 
Union, so a group of companies banded together to do it. And from 
what I gather it is a fairly sensible trade arrangement. I know 
nothing of the details. 

But Soviet bargaining power is a problem and it is, interestingly 
enough, a very serious problem withm Eastern Europe. 

;Mr. Arexs. What about relative prices between Eastern Europe 
and Soviet Russia and Western Europe? 

Dr. Allen. We now have fairly complete trade statistics for the 
Soviet Union from the period of 1955 through 1958, and some people 
have made very careful statistical analyses of this information and 
they have found, interestingly enough, that Soviet export prices to 
Eastern Europe are higher than Soviet export prices of the same 
products to Western Europe. 



18 COMMUNIST ECONOMIC WARFARE 

On the other side of the coin, Soviet import prices from Eastern 
Europe are lower than Soviet import prices of the same goods from 
Western Em-ope. 

In other words, Eastern Europe is coming out on the short end of the 
stick in this process, even though they are Communist. 

A part of this problem is that there does not seem to be any really 
effective way for the Soviet Union to gauge how to price commodities 
in trade. We must remember they have no pricing system that is 
related to world prices, so they pretty much go by world prices. 

We were speaking of Communist world domination a moment ago. 
In a sense they can not afford to have complete domination of the 
world, because they need at least one independent country to set 
prices for them. Otherwise, they do not know the value of anything. 

Mr. Arens. What prices are used in Communist trade? 

Dr. Allen. By and large world prices. That is, the prices on the 
London market, the New York market, and the Liverpool market; 
the prices of comparable goods produced by other manufacturers — 
West Germany, the United States, and the United Kingdom. These 
are the only prices they have. 

Their internal pricing system is not related to anything. It is a 
bookkeeping system to keep track of what goes on, by and large. 

Mr. Arens. What is the ruble really worth? 

Dr. Allen. This is very difficult to say, because it is really worth 
a different amount for each different commodity. It does not have a 
universal value. 

Its official value, of course, is 4 rubles to $L In some aggregate 
sense it is probably worth something like 10 rubles to $1. It is very 
substantially overvalued. 

But this does not really matter, because when the Soviet Union 
trades, or when other Communist countries trade — with a variety of 
exceptions — they trade at world market prices. Take, for example, 
a tractor which the Soviet Union wants to sell to India. The price of 
this tractor internally may be 60,000 rubles. All right, that presents 
no problem; 60,000 rubles may be what it cost in rubles to build the 
tractor. But that tractor, compared to a West German tractor of 
equal quality, is only worth, we will say, $2,500. Well, 4 to 1, that is 
10,000 rubles. In sellmg that tractor to India they sell it for $2,500, 
or its equivalent in sterling or in rupees. So they have taken a book- 
keeping loss of 50,000 rubles, which they will make up in some other 
place, or which they may just carry as a bookkeeping deficit in trade. 

There is not any relationship between cost and prices internally, or 
between the Soviet price system and the international price system. 

Mr. Arens. In what commodity is the Soviet Union paid for an 
article of merchandise which it sells? 

Dr. Allen. Increasingly, as the free world has strengthened itself 
and the international economy has been strengthened, the Soviet 
Union has sold for dollars or sterling or marks, and bought with 
dollars or sterling or marks. 

Originally, in an earher period, these were pretty much barter 
agreements. That is, the Soviet Union would agree to sell so much 
manganese ore in return for so much consumer goods, shoes, we will 
say, from India. And these were valued in terms of some very vague 
notion of what these products would sell for if they were being sold 
somewhere else. 



COMIVIUNIST ECONOMIC WARFARE 19 

But nowadays, if the Soviet Union wants to buy wool from Uruguay, 
the Soviet trade negotiator and tlie Uruguayan trade negotiator sit 
down at the table and bargain in dollars. 

The Uruguayan will say, "Our price is such-and-such." 

The Russian will say, "Well, we are buying quite a lot of this; 
can you give us a 4 percent discount?" 

The Uruguayan will say, "No; we will give j'ou a 2 percent discount 
for the quantities involved." 

Or the Russian may alternatively say, "If we are going to buy this 
stuff — and you might not sell it otherwise — we will give you 80 cents 
on the dollar at the present price in Liverpool." 

The Uruguayan will say, "We might have difficulty selling this in 
the world market. But that is too mucli; we want 90 percent of the 
Liverpool price." 

That is how it goes. There is no discussion of rubles or anything 
of that sort. And when it comes to paying, in most cases the Soviet 
Union uses dollars or pound sterling or other convertible currencies. 

In many cases they maintain mutual bank accounts in each country, 
and to the extent possible these cancel one another out, and so it is 
only at every 3 months or every 6 months or every year, we will say, 
that there is an actual transfer of sterling or other convertible currency. 

JSlr. Arens. To what extent is gold used in trade with the Soviet 
Union? 

Dr. Allen. Not very much. The Soviet Union has been exporting 
gold for the last several years. I do not have the most recent statistics, 
but my recollection is that in 1958 they sold about $250 million in gold. 
This was in order to acquire dollars and pound sterling so the}'^ could 
pay their bills. They are not in the gold market for speculative pur- 
poses so far, and thc}^ are not gold buj^ers. 

Mr. Arens. Js the Soviet gold store a threat to world markets? 

Dr. Allen. Conceivably, yes. No one knows really the magnitude 
of this gold stock, and it gives everybody fits to think about it. I have 
made some guesses, and they are proliably no better than anybody 
else's guesses. My guess is that it is of the order of $7 bilhon. This 
amounts to something. If they choose to use this in international 
markets, they could cause a lot of trouble, certainly. I am not sure 
it would suit their purposes particularly. If we followed the notion 
of what the Soviet Union is trying to do at the moment, which is to 
acquire increasing power over other countries, it would appear that 
the way they can do this best is by a sort of gradual encroachment into 
world markets. If they start acting like a bull in a china shop, by 
throwing gold around hither and yon and disrupting markets, this 
would be counterproductive. 

We should not lull ourselves into thinking they might never use 
gold if it ever suits them, and if there was ever a payoff where this 
gold could be used to buy something, to buy a country, they would 
use it. But at the moment, it seems to me that it will pay the 
Soviet Union, and is paying the Soviet Union, to act fairly decently 
in its trade, that is, to behave fairly well, to try to keep their trading 
partners moderately satisfied, within the limits of what they can 
aflord politically. 

When Yugoslavia got out of line last year, this was just too much. 
Yugoslavia has been a thorn in the side of the Soviet Union ever 
since 1948 and it just would not bow to the Soviet Union ideologically; 



20 COMMUNIST ECONOMIC WARFARE 

it just refused. And Stalin could not tolerate it in 1948, and finally 
Khrushchev could not tolerate it any further in 1958. 

And so when it came to a showdown in May of 1958 they just cut 
off all economic assistance to Yugoslavia, and trade just dropped 
precipitously between the Soviet area and Yugoslavia. 

It is clearly punitive action, just as Finland was punitive action. 
And the Soviet Union will do this, there is no question about it. If 
they thought they could gain by putting the screws on Egypt, they 
would do it. But it is a question of what they can, or what they 
hope to, achieve by various methods. 

By and large their thinking, I believe, is in terms of a gradual 
building up to a position where they do not need to exercise their 
power to have their power felt. If they gradually get so much in- 
fluence over the Egyptian Government through trade, then just a 
hint is enough to make Egypt fall into line, and they never have to 
use this power. They have it. 

Mr. Arens. How does the Communist bloc disrupt world markets? 

Dr. Allen. It has done this in a number of instances. It is very 
difficult to fathom why they have done it. An example is the tin 
case recently. Most of you have heard of this. 

The Soviet Union started in 1957 exporting tin in rather large 
quantities and it had never been a large tin exporter. The result 
was that subsequent to the Soviet sales, the tin price dropped. 

There was considerable disruption in the tin market for a while. 
The major tin producers had to cut back on their exports to make 
things come out right. 

The problem was that the tin was produced in Red China. Red 
China owed the Soviet Union a lot of money, and so it was paid 
by shipping tin. Thus, the Soviet Union had a lot of tin, far in 
excess of its needs. The problem was, what was the Soviet Union 
going to do with the tin? If they sat on the tin, that reduces their 
sterling balances, because this represents assets tied up in the form 
of tin. They could have sat on the tin and sold gold, and do the 
same thing. They chose to sell the tin. They got in the process, I 
think, something like $38 million in sterling, and made Bolivia 
angry and also made Malaya and Indonesia and some other countries 
upset at them. 

I do not really think their intention was to disrupt. I think it 
was much more simple-minded than that. They just wanted sterling 
and they did not reahze the consequences of their action. They did 
not have enough savvy in international trade to know that 18,000 
tons of tin cannot be pom-ed onto the market without having a 
considerable disruptive efl^ect. 

As I mentioned earlier, they were acting like a bull in a china shop. 
I think they did it unintentionally. I would not be prepared to 
argue that they did not do it intentionally and I think they would if 
it would be to their advantage. 

Mr. Arens. Are Soviet technicians used as espionage agents? 

Dr. Allen. There have been a number of instances where Soviet 
diplomats and Soviet trade negotiators have been accused of being 
agents. And I do not think that there is any question but what they 
have been. You see, there is a fundamental problem of what is an 
agent in this sort of context. Anyone who represents the Soviet 
Union, be he ambassador, reporter for the press, trade delegate, is in 



COMJMUNIST ECO^■OMIC WARFARE 21 

a sense an agent. Whether or not he has been engaging in subversive 
activities or stirring up trouble or things of this sort, may be even 
less important than the fact that his very presence is a Soviet presence 
and there have been instances — well, you can mention Mexico, Argen- 
tina, and, of course, the famous Australian Petrov case. And Afghan- 
istan. These countries — Argentina, Mexico, Afghanistan— have dis- 
missed people, sent people back, because they were participating in 
questionable activities. 

One thing about this espionage aspect is that Soviet trade provides 
an opportunity for the Soviet Union to acc^uire information about their 
trading partners of considerable importance. For example, when a 
country applies for a loan, the Soviet Union, just like any creditor or 
potential creditor, wants to know something about what the loan is 
being made for. So they are told, sometimes in great detail, exactly 
what the situation is in the country And this is a source of informa- 
tion — not necessarily espionage in the cloak-and-dagger sense, but 
industrial and commercial information — which is of immense intel- 
lis;ence value to the Soviet Union. 

"There have been somewhat more sticky situations. For an example, 
in ]Montevideo, the Government of Uruguay let a variety of companies 
and countries bid on a telephone network. They wanted to rework 
the whole communication system of Montevideo, The Czechs made 
a low bid, and it was an unrealistic low bid. One gets the impression 
that the Uruguaj^ans felt that they could not permit the Czechs to 
work on their telephone sj^stem, because this is such an important 
and vulnerable element of the Uruguayan economy that if the Czechs 
did it this would give them complete knowledge of the communication 
system with all of the possibilities for tapping and for ot.her aspects 
for sabotage or anj^thing of this sort. And they did not give it to the 
Czechs. They gave it, I believe, to a British company. 

Mr. Arens. What about the use of trade technicians as political 
propagandists? 

Dr. Allen. There is no way to avoid it. These are people, and 
they represent first the Soviet state, and they also represent commu- 
nism in the countries. Whether or not they get out on soap boxes and 
deliver speeches is quite another matter, although there has been some 
of that. Certainly the presence of these people is given an outsized 
display, particularly in the underdeveloped countries. The press 
heralds the comings and goings of trade delegates and things of this 
sort with much fanfare. Every statement they make becomes im- 
portant to the press, so there is this element of psychological warfare. 

I sometimes have the feeling that what we are calling economic 
warfare is just as much psychological warfare as it is economic war- 
fare; that the economic substance of much of this is pretty slender, 
and they are willing to undertake a variety of things, just simply for 
the psychological advantage. 

I^Ir. Arens. What is the threat of Communist economic warfare? 

Dr. Allen. I think it is what we have been talkhig about, the 
psychological aspect of it, the possibility that the Soviet Union can 
gradually work itself into positions of influence with trading partners, 
to the point where the trading partners gradually have their sover- 
eignty eroded away, where they no longer are in complete control of 
their foreign policy. 



22 COMMUNIST ECONOMIC WARFARE 

A good example is, I think, tlie problem of the admission of Red 
China to the UN. This is a big deal to the Communist area. They 
think this is terribly important, and evei-ywhere they can, they are 
emphasizing the importance of the People's Republic as opposed to 
the Nationalists in the UN. Over a period of years I think Soviet 
economic activities have influenced some countries. 

Clearly Egypt has recognized Red China, and now favors the ac- 
ceptance of the People's Republic credentials as opposed to those of 
the Nationalist Govenmient. This is the danger, that a country 
unwittingly, perhaps unwillingly, will give up things in the field of 
international affairs that are harmful to the free world. 

Mr. Arens. Why is the Soviet bloc so anxious to trade with the 
United States? 

Dr. Allen. Two reasons : One, psychological : We have kept them 
from doing it; therefore, they want to do it. And it sets a wonderful 
example; you see, if we would trade with the Soviet Union, why 
should not Pakistan, or anybody else? If we will trade with them, 
there is no reason why anybody on earth should not trade with them. 
This is one thing, the political-psychological element. 

The other one is strictly economic: The Soviet Union has just 
embarked on a very ambitious industrial plan. They need things to 
fulfill this plan. They need chemical equipment, they need a variety 
of pieces of industrial equipment. They want to get them from the 
United States. They want to buy our technology and our machinery 
and equipment, and they are willing to pay for it. 

They would like to wring out the last possible political and psycho- 
logical advantage in so doing, but they would still like to have the 
material. 

Mr. Arens. What can or should the United States do to minimize 
the threat of Communist economic warfare? 

Dr. Allen. This is a very difficult question. I think that we ought 
to arrange our own affahs in such a way that trade with the Com- 
munist bloc by other countries is not particularly advantageous. We 
ought to provide such a healthy, sound, international economy, or 
contribute to a sound, healthy, international economy, that the 
Kremlin cannot make any headway with its gimmicks and gadgets 
and with its oft'ers of premium prices and things of that sort. What 
we want are free international markets. Then when the Soviet Union 
does business, they have to behave just like any other country. There 
is no advantage in side deals with really free international markets and 
relatively free flow of goods and services. 

This does not mean that there will not be any trade barriers. 
Countries will always have trade barriers. I think in some cases 
trade barriers are to excess. And we ought not to divide up the 
world amongst ourselves. We ought not to adopt the techniques of 
the opposition. We ought to give every advantage, every possible 
advantage, to the development of the private trading system, free 
enterprise system, in trade. 

It sometimes worries me that we tend to think in terms of planning 
and state operations in order to combat planning and state operations. 
I do not think that is the answer. I am convinced that we have a 
better system. We ought to make the most effective use of that sys- 
tem. We should improve that system. There are lots of deficiencies, 
lots of things wi'ong with it, some specific and some general things 



COMMUNIST ECONOMIC WARFARE 23 

could be done to improve it. But certaiuly \vc should not attempt to 
emulate the Soviet Union. 

For instance, in aid, they are imitating us. Now we should imitate 
them again? 

I think the greatest contribution that we can make is continued 
efforts toward free international markets Avith as low a level of trade 
barriers as is consistent with sound progress of the countries of the 
free world and encouragement of the free enterprise system in trade 
and in the operations of the domestic economy. 

The Chairman. Thank you very much, Dr. Allen, for your splendid 
contribution in our consultation. 

(Whereupon, at 12:50 p.m., Wednesday, April 6, 1960, the con- 
sultation was concluded.) 



INDEX 



Individuals 

Paee 

Allen, Robert Loring 1-3, 5-23 (statement) 

Fat;erholiu (Karl August) 9 

Kekkonen (Urho) 9 

Khrushchev, Nikita 20 

Nasser (Gamal Abdel) 8 

Nehru ( Jawaharlal) 15 

Petrov (Vladimir) 21 

Stalin (Josef) 20 

Organizations 

Communist Party, Iceland 8 

Council for Mutual Economic Assistance (COMECON) (also known as 

Council for Mutual Economic Aid) (CEMA) 10 

Union of Soviet Sociahst Republics, Governm.ent of — Ministry of Foreign 

Trade 15, 16 

University of Oregon 5 

University of Virginia, Woodrow Wilson Department of Foreign Affairs. _ 5, 6 

i 

o 



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