This is one of the more interesting questions of the last 40 years.
A know a lot about the situation in the 1980s, but very little about the period before that. I've been working with a group over at Tank-Net.org on a NATO 1989 OOB for almost two years now, and it is now very comprehensive. It is now available on my web site, [url]
www.microarmormayhem.com[/url].
In general, NATO become stronger as the 1980s progressed while the Soviet became weaker. NATO's economies during the period were generally growing well, while he Soviet economy was stagnant at best. NATO defense spending generally rose both in real times and as a percentage of GDP.
NATO also grew more unified during the period. Greece and Turkey became more active members and, to some extent, managed to put aside some of their grievances. Spain become more active (although was never fully committed to NATO militarily in the same sense as other members). France effectively, if not officially, came back to the fold, and developed close defense ties with the West Germans.
The situation for the Warsaw Pact was effectively the opposite. The troubles in Poland during the early 1980s were effectively kept from breaking out into the open, but they continued to simmer just below the surface. As the economies of the Non-Soviet Warsaw Pact members slowed, so did their military modernization efforts and their ability (and political willingness) to commit significant resources to their militaries.
On the military front, NATO switched from primarily an infantry force to primarily a mobile one, in organization, equipment and doctrine. While the alliance was still officially wedded to forward defense (for domestic German political reasons), it made a far greater effort to focus on defense in depth.
I would not want to speculate who would win in a general conflict -- it would be heavily dependent on the cause of the war, the length of the mobilization period for each side, and the overall political situation. That said, as the decade progressed, NATO became significantly more competitive.
A few things I find interesting:
The first is that NATO was far larger than the Warsaw Pact, both economically and demographically. There were about 290 million Soviets along with 103 million more in the Warsaw Pact. There were 248 million Americans, and another 410 million in other NATO nations. Depending on who you believe and how you work the numbers, NATOs economic power was something like 3 or 4 times that of the Warsaw Pact.
NATO was also spending only a small fraction of its GDP on the military; probably averaging about 6% during the decade. Glanz, in The Collapse of Soviet Military Power (may be wrecking the title) estimates that the USSR was spending somewhere around 30% IIRC on security. The net effect -- in any long war (or a conflict preceded by a longer period of tension) it was relatively easy for NATO to radically up its military spending, but very difficult for the Soviets to do so.
On a smaller scale, the Soviets had four problems that would probably have been magnified dramatically had a war last several weeks or more:
-- They lacked a class of professional NCOs (there were warrant officers, but very few). As units took casualties, there would have been very little glue to rebuild them with -- no class of long-term professionals who could step in and make things work.
-- Soviet divisions were far smaller than their NATO equivalents in personnel. There were very few rear-area units to cannibalize to fill up combat units with replacements, and no dedicated system for rebuilding units in the short term. Units that burned out would stay that way. In contrast, the Germans had an excellent replacement system that, combined with their excellent battlefield recovery and repair ability, would have given their units some serious staying power.
-- The Soviets would have to dedicate significant numbers of units to other fronts -- at least some divisions would have to keep an eye on China; it is likely that Bulgaria would need rapid reinforcement; and troops would be required for both occupation duty and for keeping an eye on their Warsaw Pact allies.
This is not to say NATO did not have significant disadvantages, but they pale by comparison.
I could go on and on, but I'll cut it off there.