maybe to strengthen our bonds with Turkey and other nations, if some sort of a release could be gotten out which would be very definitive and helpful to clear the air on this subject, so there would not be this correspondence I am having on the subject and so the people would feel more comfortable.

Secretary MCNAMARA. I think your suggestion is an excellent one. The CHAIRMAN. Now members of the committee, if there are no further questions on the JUPITER, we will ask the Secretary to proceed now and submit his statement on the posture situation in the world and which has a bearing on our consideration of section 412.

Now, I stated to the Secretary and stated to the committee that no doubt the Secretary would not use in its entirety the report before us, but he will cull out what he considers to be the high points in this very fine statement he has prepared.

If he does it by following the book, I ask him to designate the page so we can follow it in our books that we have in front of us.

Secretary MCNAMARA. Thank you very much, Mr. Chairman.
The CHAIRMAN. Wait 1 minute.

Mr. ARENDS. I have some blue pencil marks here. These are the excerpts you are going to read, Mr. Secretary?

Secretary MCNAMARA. Yes, Mr. Arends. I was going to say if it is satisfactory to the chairman and the members of the committee, I propose

The CHAIRMAN. Give me a new book, then. I used the original book that you sent up.

Mr. SMART. Give him the lined book.

Secretary MCNAMARA. I propose to read only those parts which are blue lined in the margin.

The CHAIRMAN. I see.

Secretary MCNAMARA. And I think this will bring out the more important points and save your time.

The CHAIRMAN. That is right.

Secretary MCNAMARA. Moreover, I would suggest that we try to cover the introduction, the strategic systems and the continental air defense.

That is to say the first 64 pages of which I would read only the blue lined portions and then perhaps you would like to stop for a question break.

The CHAIRMAN. That is right, then we will stop here and let the committee have the privilege of examining you.

Secretary MCNAMARA. All right. I will go right ahead, Mr. Chairman.

The CHAIRMAN. Now let the Secretary proceed, members, without interruption. And when we have finished with that section of his report, why then we will stop and ask you questions if we have any. Proceed, Mr. Secretary.

STATEMENT OF SECRETARY OF DEFENSE ROBERT S. MCNAMARA ON FISCAL YEARS 1964-68 DEFENSE PROGRAM AND 1964 DEFENSE BUDGET

Secretary MCNAMARA. Mr. Chairman and members of the committee, it is again our privilege to present to you our defense program projections for the next 5 years, and our budget proposals for the

coming fiscal year. The form of this statement is similar to the one I presented to you last year. It is arranged in the same manner in which the defense program is developed; namely, in terms of the principal missions of the Defense Establishment, rather than by organizational component or by budget category.

In addition, the last section presents our requests for the authorization of appropriations for the research and development and procurement of aircraft, missiles, and naval vessels. The service secretaries and chiefs will appear later in your hearings to present statements on their respective services.

Upon completion of my statement, General Taylor, the Chairman of the Joint Chiefs of Staff, is prepared to present his analysis of the relative military postures of the United States and its allies and the Sino-Soviet bloc.

Again, because of the length of my Statement, I would like to present it in sections, if agreeable to the committee, holding myself available for questioning at the end of each section. The statement contains 11 sections, as shown in the table of contents. In addition, there is attached to each copy a set of related tables which you may wish to follow as we proceed through the statement.

By and large, we have projected the forces and programs through fiscal year 1968, 5 years beyond the current fiscal year. As I pointed out last year, the further we project these programs the more provisional they should be considered. Changes will have to be made as we move along and entirely new projects, the need for which cannot now be clearly foreseen, will have to be added, as has been done this

year.

We have also projected program costs through fiscal year 1968, but these cost projections are still highly tentative. Like all such projections, they suffer from what might be called a "bow wave" effecta peaking of costs in the years following the budget year and a sharp tapering off in the later years. The peaking is principally the result of two factors: (1) The postponement to the next year of marginal and less urgent projects; and (2) the fact that the program costs beyond fiscal year 1964 have not been subjected to the detailed and rigorous budget reviews accorded the 1964 estimates. Thus, we are continually pushing the peak of the program before us as we move from year to year; hence, the "bow wave" effect.

The downward slope in the later years of the 1964-68 period simply reflects our inability to see very clearly the course of future events. This is the typical downward bias inherent in all longer range projections, Government or industry. We know, for example, that some of the projects included in the research and development program will advance to production and deployment before the end of fiscal year 1968, although we are not sure now which ones will be so advanced. When the decision to produce and deploy is made, the project is transferred to the appropriate mission-oriented program; that is, Strategic Retaliatory Forces, Continental Air and Missile Defense Forces, General Purpose Forces or Airlift and Sealift Forces, and additional funds are added to procure and operate the system. Therefore, no precise conclusions as to the future course of the defense program can be drawn simply on the basis of such cost projections. They are useful for internal Defense Department planning, but are in no sense predictions of future budgets.

I also want to remind you that I will be talking about costs in terms of "Total obligational authority." Total obligational authority represents the full cost of an annual increment of a program regardless of the year in which the funds are authorized, appropriated, or expended. These costs will differ from "New obligational authority" in many cases, especially in the "Procurement" accounts where certain prior year funds are available to finance 1964 programs. Moreover, most of my discussion will deal with the total cost of a program, including the directly attributable costs of "Military personnel,' "Operation and maintenance," as well as "Research and development" and "Military construction." A reconciliation of the program costs with the budget titles and appropriation accounts for fiscal years 1963 and 1964 is shown on tables 6 and 7.

Throughout this discussion I will try to call to your attention all major changes from the programs presented to you last year and give you the reasons for them. This will tend to lengthen my statement somewhat, but I believe you will want to know about these changes.

I. INTRODUCTION

A. APPROACH TO THE FISCAL YEARS 1964-68 PROGRAM AND THE FISCAL YEAR 1964 BUDGET

This year, in contrast to last year when we had to develop a 5-year program from the ground up, we started the budgeting cycle with an approved program projected through fiscal year 1967. This was essentially the same program I presented to the committee last year. We realized, of course, that changes in this program would be needed as time went on; first, to reflect the action of the Congress on our fiscal year 1963 budget, and then to take account of all the numerous changes which are bound to occur in the international situation, in our requirements for military forces, in technology, and in costs. Accordingly, we established last summer a program change procedure designed to provide an orderly method for proposing, reviewing, and approving program changes. The procedure affords all elements in the Defense Department concerned with a particular proposal a full opportunity to present their views. For example, an Air Force proposal to modify its airlift fleet would be referred to the Army for comment as a user; to the Navy because of its impact on the sealift requirement; to the Joint Chiefs of Staff as representatives of the using commands, as well as to appropriate parts of my office. When all of these views have been assembled, Mr. Gilpatric or I review each proposal and render a decision or, in some cases, ask for further study. Where major issues are involved we discuss the matter in greater detail with our principal military and civilian advisers. Indeed, such major issues as the RS-70, NIKE-ZEUS, strategic forces, and so forth, were given individual and extensive study by the Chiefs, and their views were considered before the decisions. were made.

The program change procedure went into effect last July and, up until the time the budget estimates were submitted in early October, several hundred program change proposals were received. These program changes would have added about $40 billion to the previously approved 1964-67 program base. The sizable sums requested were

by no means unexpected, inasmuch as we had eliminated the arbitrary budget ceilings which had been used prior to 1961.

The program change procedure has unquestionably increased the workload on the Office of the Secretary of Defense, but I was particularly anxious that nothing should be done to discourage the military departments from submitting any program change they felt was necessary for the defense of the Nation. This was consistent with President Kennedy's instructions to me to (1) develop the force structure necessary to meet our military requirements without regard to arbitrary budget ceilings; and (2) procure and operate this force at the lowest possible cost.

The total of the fiscal year 1964 programs and budgets submitted by the services and defense agencies amounted to $67 billion. All of the budgets were carefully reviewed jointly by the budget examiners of my office and the Bureau of the Budget, as has been the custom in the past. The analyses resulting from this review were forwarded to me for decision. In consultation with our principal advisers, Mr. Gilpatric and I then thoroughly reviewed all of the outstanding issues. Our decisions were transmitted to the respective services and, in the final step of our review, outstanding differences were resolved. As a result of this review, we were able to reduce the approximately $67 billion requested by the services to the total of $53.7 billion in new obligational authority recommended in the President's budget.

Admittedly, the President's budget does not include every program desired by the various elements of the Defense Establishment. Many of the items deleted during the budget review, although important perhaps from the viewpoint of one department, were redundant in terms of the defense program as a whole. This type of overlapping of proposed programs is inherent in the way the Defense Department is organized, and it is not necessarily undesirable. It does assist in presenting to the top management of the Department of Defense a wider range of alternatives from which to choose, but it also requires some hardheaded decisions in the program and budget reviews in order to prevent uneconomical duplication of effort.

Then, there are a large number of desirable, though marginal or post ponable, programs and activities which are always left to be screened out by the Secretary. Although this, too, increases the workload in my office, I believe we can adequately cope with it. We make this additional effort in order to insure that every project or activity deemed important to our national security by any element of the Defense Establishment is given consideration in the formulation of the overall defense program and budget.

In adding to a defense budget as large as the one we now have, we begin to encounter the law of diminishing returns, where each additional increment of resources applied produces a smaller increment of overall defense capability. While the benefits to be gained from each additional increment cannot be measured with precision, careful cost-effectiveness analysis can greatly assist in eliminating those program proposals which clearly contribute little military worth in relation to the resource expenditures involved. We have applied this principle throughout our program and budget reviews.

Now I would like to turn over to page-about 24 or 25.

Page

Let me just stop on 25 for a second. And without reading it, I want to draw your attention to the subject that is referred to. 25: "Balance of Payments."

This remains a critical problem for our Government. It is a problem for the Defense Department.

You may recall that last year in discussing the subject with you, I stated that in fiscal year 1961 we had a net adverse balance of payment associated with defense obligations abroad approximating $2,700 million.

It was our objective to reduce that by $1 billion between fiscal 1961 and fiscal 1963.

I believe we will attain that objective, largely by the program of negotiating with foreign governments, principally West Germany, the procurement of military equipment by those foreign governments in the United States-this being an offset to our expenditures abroad. But in fiscal 1963 we will still spend on the order of $1,700 million net of the purchases of this country by foreign governments to support our operations abroad. This is a substantial gold drain. It remains a problem. We are continuing to work to reduce that to a still lower level. It is our objective to reduce it by $700 million between fiscal 1963 and fiscal 1966.

Now perhaps we can go ahead to page 28.

Page 28.

Obviously, the value of another billion dollars spent for defense also depends on changes in the world situation and the military effort undertaken by our antagonists. A large increase in the Soviet defense budget, for example, could substantially increase the value of an additional increment to our own defense budget. A further tightening of tensions or belligerent actions against the United States or its allies might well increase the relative value of additional military effort. Our Communist opponents have greatly extended the range of conflict to cover virtually every aspect of human activity. And we, together with our allies, must carefully allocate our defense effort to insure that we can meet the challenge on every front and at every level. An assessment of the present and prospective international situation and the military programs of our principal opponents is therefore highly pertinent to any discussion of the defense program and budget.

B. ASSESSMENT OF THE INTERNATIONAL SITUATION AS IT BEARS ON MILITARY POLICIES AND PROGRAMS

Last year, when our attention was focused particularly on the Berlin crisis, I pointed out that the defense program we were recommending was geared to our global requirements over the long term, and not simply to the immediate situation as it then obtained. Since that time, the Nation and, indeed, the whole world has gone through another crisis, precipitated again by the Soviet Union, this time in Cuba. I believe it is clear from the actions taken by the President last October that the U.S. Government viewed with the greatest concern the sudden intrusion of Soviet offensive weapons in Cuba, only 90 miles from our own shores. However, as acute as this crisis was, and the aftereffects have yet to be fully liquidated, it did not then and should not now distract our attention from the more fundamental and far-reaching challenge which communism poses to the free world. Without in any way minimizing the grave threat to our national security which would have been posed by Soviet nuclear armed ballistic missiles in Cuba, or, for that matter, the Soviet