Research for Defense Economics

The extent to which the heavy commitment of resources to the Soviet merchant fleet in recent years is worthwile from the standpoint of economic efficiency is assessed in this research contribution. The analysis involves a comparison of the real costs incurred by the Soviet merchant fleet with the real benefits obtained. Because of the nature of Soviet cost-accounting practices and because Soviet prices often bear little relationship to either the scarcity of goods or the demand for them, the money costs of ocean shipping reported by the Soviets are poor indicators of real costs. In spite of these difficulties, money costs are used because they can be adjusted to make them at least informative as measures of real costs. But since Soviet prices are even less meaningful in reflecting utility than in indicating costs, cash flows arising from merchant shipping operations could not be used as the primary measure of real benefits. Consequently, benefits are assessed largely in terms of foreign exchange earned or saved. The evidence indicates that since at least 1964, the Soviet merchant fleet has contributed substantially to the improvement of the country's balance of payments. The hard-currency earnings of the merchant fleet have been of particular importance, since they have been sufficient to offset a significant fraction of the deficits arising from Soviet commodity trade with the West.

Suggests a measure of the value of defense; namely, reduction in the cost of repairing or replacing capital items subjected to attack.