How We Lost the Peace Dividend


John Alic, Lewis Branscomb, Harvey Brooks, Ashton Carter, and Gerald Epstein, Beyond Spinoff: Military and Commercial Technologies in a Changing World (Harvard Business School Press, 1992).

Bonn International Center for Conversion, Conversion Survey 1996: Global Disarmament, Demilitarization and Demobilization (Oxford University Press, 1996).

Kevin Cassidy and Gregory Bischak, eds., Real Security: Converting the Defense Economy and Building Peace (State University of New York Press, 1993).

Jacques Gansler, Defense Conversion: Transforming the Arsenal of Democracy (MIT Press, 1995).

Gregory Hooks, Forging the Military-Industrial Complex: World War II's Battle of the Potomac (University of Illinois Press, 1991).

William Kaufman and John Steinbruner, Decisions for Defense: Prospects for a New Order (Washington, D.C.: The Brookings Institution, 1991).

Murray Weidenbaum, Small Wars, Big Defense: Paying for the Military after the Cold War (Oxford University Press, 1992).

The United States has a long history of opposing large, standing armies. After every previous war, including Vietnam, we expeditiously dispatched troops, shuttered bases, mothballed or scrapped equipment, and canceled defense contracts. Today, our former Cold War adversary has decomposed into internally riven successor states, each of which has seen its military industrial sector collapse. A reunited Germany has dramatically lowered its spending on the military, as has Britain. Indeed, except for a few fast-growing Asian countries, defense spending is declining worldwide. Meanwhile, polls reveal that while Americans favor strong national security, they worry that we spend too much money on defense—and that we spend it unwisely. In fact, only a minority of Americans polled want to increase spending on military research; 80 percent, however, support more research on health care. So why has the United States failed to demobilize since the Cold War?

Consider that the U.S. today spends more on the military than in the years after Vietnam, when Cold War relations were still frosty. The defense budget is only barely lower than it was before the Carter-Reagan Cold War build up. Real dollar spending in the 1990s is running about 85 percent of the Cold War average. And now, after decades of preserving competition among giant corporations with a few billion in annual contracts apiece, the Pentagon is not only permitting but subsidizing marriages among the largest contractors, creating mammoths like Lockheed Martin, a $30-billion-a-year company that commands more than 11 percent of the entire procurement budget. Such consolidation will make it more politically difficult to lower defense spending.

But deeper cuts are inevitable. Driven by budgetary imperatives, the Pentagon's Quadrennial Review, unveiled in May, recommends cutting defense spending by tens of billions of dollars between 1999 and 2003—an amount, it should be noted, that will likely be far less than the cuts currently planned for Medicare. Debate over the review's recommendations will take place over the coming year; this may be our last chance for sober public scrutiny of what we really need for defense.

In the early 1990s, America was ready for a peace dividend. Taking office in 1993, Bill Clinton envisioned moving talent and technologies from dead-end Cold War projects to civilian products and services. Nearly five years later, however, the United States still has no coherent defense conversion policy. The companies and communities that have succeeded in shifting their attention from outdated military products and services to useful civilian ones have done so at their own risk and initiative. We have much less to show from this period than we ought.

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Cooperative Security

In Decisions for Defense: Prospects for a New Order, the Brookings Institution's William Kaufman and John Steinbruner lucidly analyze America's dramatically altered security environment. New threats, they argue, are confined to small nations far less well equipped than the United States. At most the U.S. might face one or two regional conflicts on the scale of the Persian Gulf War, for which we can rely upon joint actions with our numerous well-armed allies. Such a "cooperative security" strategy would cut about $100 billion a year from the defense budget, because we would no longer have to prepare for sole prosecution of two Gulf-scale wars nor maintain autarkic production capability. In fact, shortly after the Gulf War, Les Aspin, who then chaired the House Armed Services Committee, wrote a remarkable memo evaluating four "bottom-up" scenarios for downscaling defense, some of them based on the "cooperative security" approach.

But after becoming secretary of defense, Aspin mysteriously embraced a scenario that preserved old weapons systems at levels not significantly below what they had been during the Cold War; under the scenario Aspin chose, the United States would keep itself prepared to fight two regional wars simultaneously and alone, a prospect considered extremely unlikely and undesirable by most independent analysts. Analysts also noted that Aspin's budgets were inadequate to equip this strategy and predicted that his endorsement of the two-war plan would lead to hawkish charges that U.S. defense strategy was underfunded. This prediction was correct: Last summer, the Republican Congress added $11 billion (equivalent to the "savings" generated by welfare reform) to the military budget, mainly for funding old Cold War systems like the B-2 bomber and the Seawolf submarine.

Public statements from the armed services defending current force structures and procurement plans argue that the world is a more dangerous place than ever. But when pressed to identify the enemy, the military establishment invokes the specter of rogue states and terrorists—despite the fact that threats from such quarters could not possibly be responded to with Cold War equipment. The Quadrennial Review will force some hard choices. It suggests among other things that troop size be trimmed by at least 100,000; that the F-22 and F-18 programs be cut to make way for a joint strike fighter; and that the extravagant missile defense program be slowed down substantially. But the country would benefit from still further cutbacks and changes: another round of base closings; the scrapping of plans for an arsenal ship; cuts in pricey aircraft carriers; and curtailing of nuclear weapons research. The problem is that the Americans who would most benefit from investment and public services funded by defense savings are not engaged in the security debate; their interests are diffuse against a powerful entrenched lobby and bureaucracy.

The biggest impediment to conversion is the "Iron Triangle,"1 that triumvirate of large defense contractors, the Pentagon, and Congress that has actively resisted even modest conversion initiatives over the last decade. The power of the Iron Triangle is considerable: It is fortified by an ideological climate that repudiates an activist government role in reshaping industrial sectors, even in times of great challenge, and by its immunity from the kind of public scrutiny to which other government institutions are subjected. While there are plenty of detailed analyses of health care and welfare bureaucracies, for example, trenchant economic analyses of the defense industrial nexus largely disappeared after Vietnam, because few social scientists have access to the inner workings of the Pentagon.

The end of the Cold War, however, led to new thinking. The books under review here make seminal contributions on how to downsize the military and transfer freed-up resources to civilian use. But the hard part remains coming up with a political strategy for achieving conversion—and these books fail to provide one. Without both strong demand from nonmilitary quarters and an activist conversion strategy, the United States will not be able to transform its bloated defense system with the speed and efficiency that it did under Harry Truman in the 1940s and after Vietnam in the 1970s.


The Do-Nothing Strategy

Of the books under review, the most pessimistic and least visionary is Murray Weidenbaum's Small Wars, Big Defense: Paying for the Military after the Cold War, published in 1992. Weidenbaum, former chair of Ronald Reagan's Council of Economic Advisors and now director of Washington University's Center for the Study of American Business, makes the best case that can be made for what he calls the "do-nothing" approach—stingy toward defense workers, solicitous toward defense contractors.

Weidenbaum argues that we should simply cut the defense budget and let the market redistribute technology and talent. Relying heavily on the neoclassical economics mantra that the private sector always does it better, Weidenbaum argues that past conversion efforts by government have been failures. After providing a highly selective history of American defense downsizing, Weidenbaum concludes that military contractors are best at making weapons—and that if they can't make lots of weapons, they should simply downsize.

But Weidenbaum's history ignores the dramatic creation of entirely new high-tech industries out of defense-oriented firms and technologies. Boeing, for example, where Weidenbaum himself used to be a corporate economist, illustrated how a company can beat its swords into ploughshares by transforming a military tanker into the highly profitable 707. The computer, semiconductor, and communications industries are filled with firms that originally subsisted largely on defense contracts but that are now fantastically successful in commercial markets. Government acted as both research underwriter and as buyer of first resort for these companies, as they shifted from military to civilian production. Furthermore, Weidenbaum's history ignores such companies as TRW and Raytheon, in addition to Boeing, that continue to operate successful military and civilian divisions with considerable cross-fertilization.

Though it is more a polemic than a rigorous analysis, Weidenbaum's book actually comes very close to providing an accurate description of what happened in the initial post-Cold War years, when Bush's inner circle of free market economists and political strategists, including Michael Boskin, Richard Darman, and John Sununu, drowned out voices counseling a more activist strategy for shepherding leading-edge military technologies into the civil sector.

Weidenbaum's "school of hard knocks" prescription is unrealistic about the politics of the defense budget. It ignores, for example, the fact that companies, trade unions, and communities will usually come together and mobilize politically to defend local defense companies, in defiance of "the market." Further more, the failure to spend small amounts on conversion has led to enormous waste in spending on obsolete programs and deferred further displacement to a later date. In order to achieve defense savings, some transitional support must be offered to those whose livelihoods are to be eliminated—not just out of human concern but because transitional support can be economically efficient, speeding the transfer of talent to commercial sectors. After World War II, the nation weaned itself from defense dependency amounting to 40 percent of gross domestic product to less than 10 percent in a few short years. Without parallel efforts, post-Cold War defense budgets are likely to remain stuck at unwarranted levels.


Spinoffs and Dual Use

In 1992, at any rate, Democrats knew this. President-elect Clinton talked explicitly about larger defense cuts, conversion, investment, and technology policy. But Clinton and his advisors had a credibility problem. To avoid seeming soft on defense, they aimed to supplant the focus on national security with a new emphasis on competitiveness. They pointed to Japan as America's number one competitor, if not enemy, and expostulated on the need to maintain a technological lead in terms redolent of the arms race. They favored the transfer of Cold War talent into new research, procurement, and infrastructure projects that would restore American economic hegemony while coincidentally equipping the military with better quality and cheaper weaponry.

Beyond Spinoff is the template for the Clinton administration's technology and dual-use strategy. Written by five highly knowledgeable authors from different disciplines, the book articulates the view that in a world of toughening and accelerating economic competition, the U.S. system of innovation is not performing well enough. During the postwar period, American innovation relied heavily on Department of Defense research and development contracts awarded to science and engineering-intensive private-sector firms, which would in turn generate spinoffs that built new industries and American comparative advantage.

But while spinoffs from defense research did run thick and heavy in the immediate post-World War II period —jet aircraft, computers, semiconductors, and microwave ovens, to list just a few examples— Beyond Spinoff contends that this machinery for innovation has become increasingly oversized, lethargic, prohibitively expensive, and irrelevant to today's global competition. What's the solution? Beyond Spinoff's authors suggest that the Pentagon vigorously pursue "dual-use" procurement practices—nurturing firms, technologies, design practices, and products that serve both defense and civilian markets—to scale the "wall of separation" between defense and civilian activity.

But simply encouraging civil-military integration is not enough. Government must continue to make the investments in science and technology that have so clearly cultivated our most successful industries (aerospace, arms, agriculture, computers, and so on). Advanced technologies should be underwritten because they promise to promote the public good by strengthening American industry and exports, translating into profits and jobs. And, the authors boldly argue, these programs should be housed outside of the Department of Defense and beyond the fray of politics and pork. There must be competition, public-private cooperation, merit-based selection criteria, and ongoing monitoring of success and failure.

What the Clinton team tried in its first term was remarkably close to the Beyond Spinoff prescription. Commitments totaling billions of dollars were made for technology reinvestment project (TRP) grants to teams of firms. Hundreds of millions more were allocated for partnerships between the Department of Energy's national laboratories and industry. These programs were impeccably crafted, but not well marketed politically. They were seriously underfunded and were outclassed by successful contractor assaults on the federal treasury or arms export and firm merger subsidies, amounting to billions of dollars more than what dribbled out for conversion.

Furthermore, neither the authors of Beyond Spinoff nor the Clinton administration acknowledged how little their vision offered to large contractors and defense workers. The defense giants have fought erosion of their sheltered markets and inside track on technology development, limiting the effectiveness of dual-use procurement reforms and the success of the TRP. Many in the armed forces also resist dual-use practices: Accustomed to technology-driven solutions to strategic problems, they continue to put performance above cost and to give priority to long-term personal relationships with contractors (whose marketing departments are top-heavy with former military men). Finally, trade unionists see little for at-risk workers in a Clinton policy that puts long-term technology development before job creation.


More Bang for the Buck

Where Beyond Spinoff addresses how to improve American commercial performance, Jacques Gansler asks in Defense Conversion: Transforming the Arsenal of Democracy how America can maintain its military strength with a greatly reduced budget. Gansler, a former deputy assistant secretary of defense for material acquisition, and currently vice president of a defense consulting firm, makes an articulate case for breaching the wall between civilian and military production.

Gansler recommends a "dramatic transformation of the nation's industry into a largely integrated (civil/military) structure." As we move from attrition-based warfare to information-based and remotely controlled techniques, where precisely targeted missiles rather than soldiers win wars, Gansler worries that the current defense industrial structure will not foster "the constant development and deployment of new breakthrough technologies . . . needed to stay ahead." Instead of buying antique weapons, the nation should scrap the expensive system whereby we maintain separate firms, plants, research labs, and administrative staff for military procurement. Defense Conversion provides a comprehensive list of changes in rules and regulations that would make integrating military and civilian work on a firm-by-firm basis more feasible.

Gansler stresses that as long as America protects and cultivates weapons innovation, competition, and privatization, it can maintain its world hegemony while keeping its costs down. But this formula has both logical and political flaws. As military and civil firms become more integrated, the advanced weaponry they develop can "leak" rapidly around the globe. Gansler argues that this problem can be circumvented by investing even more heavily in military R&D, so that the U.S. will be able to stay ahead of its competitors. But in addition to its increased cost, continued arms innovation will entrench cumbersome oversight procedures and thwart dual use, both because secrecy must be maintained and because the esoteric capabilities demanded on the military margin are largely incompatible with commercial success. Under an innovation-intensive security regime, defense contractors will eschew diversifying into civilian industries and bank on insider access to Pentagon planners to keep their fat contracts.

Preserving competition among defense contractors is crucial for making Gansler's plan work. More activist than Weidenbaum by far, he argues for a strategic plan in which the Department of Defense would set out how many firms it wants to continue competing in each weapons line and what public-private mix should be maintained. Beyond that the government would engage in guidance only and let the market decide which specific firms and plants survive in the business. But Gansler underestimates the forces now collapsing the industry into a few monopolistic and defense-dedicated firms. Rather than a full set of defense contractors, each of which is more diversified and whose ranks might be more easily joined by other commercial firms, we possess a "market" consisting chiefly of duopolies.

Gansler targets government laboratories and arsenals for privatization, claiming they are both inefficient and unnecessary. Parroting the industry line that the Defense Department is moving toward "socialism" and the Russian defense industry model, he argues that "experience has shown that publicly owned facilities are even harder to close or control than those in the private sector." But Gansler is able to make this argument only with a highly selective use of statistics. Using the 1987 Reagan peak as his base year, Gansler has the number of private defense jobs falling by 38 percent since then, and Pentagon civilian jobs falling by only half that. But if Gansler had used the Cold War low of 1976 as his base year, private defense contractors today employ 33 percent more workers, while government defense labs and arsenals employ 17 percent fewer workers than they did 20 years ago.2

Gansler depicts the 108-;member military depot caucus as "one of the largest and strongest 'lobbies' in the U.S. Congress." But managers of government depots can only hope to mobilize voters; they cannot spend public money on lobbying. Private-sector contractors can lavish defense-bred profits on political campaigns and often organize their employees and communities in high-visibility efforts to secure contracts. The Aerospace Industries Association and its big member companies are far bigger and wealthier than communities with depots.

Gansler's book has been embraced by an ascendant group of defense electronics contractors that would prefer to see the contested defense billions channeled toward weapons innovation. In fights over the composition of the defense budget, contractors clash with armed services officers who care less about rapid innovation than about their troops, whom they want to keep well trained to use their already pretty high-tech gear. A third contingent, consisting of the large manufacturers like General Dynamics, Mc Donnell Douglas, and Northrop-Grumman, are pressing to keep the cash flowing for F-16s, B-2 bombers, Seawolf submarines, and aircraft carriers. Technology policy elites love Gansler's vision. Former Secretary of Defense William Perry was solidly in this camp; current Defense Secretary William Cohen, with military bases and a huge, commercially uncompetitive General Dynamics shipyard in his home state, is more likely to want to keep older production lines "warm." A politically viable conversion strategy needs somehow to reconcile the concerns of all three groups. The Quadrennial Review, which envisions troop reductions providing the greatest savings in the defense budget, suggests that the two defense industry groups may be gaining at the expense of the manpower advocates.

Beyond Spinoff, Defense Conversion, and Small Wars, Big Defense are all long on what ought to be done but short on how to do it politically. Still, all three books have been influential. Weiden baum's book provided intellectual support for Republican anticonversion arguments, while Beyond Spinoff and Defense Conversion laid out cogent rationales for the technocratic Democratic approach. But none of these books anticipated the way in which the Iron Triangle upset the best-laid plans. A top Commerce Department official, facing last year's congressional attacks on Clinton's favorite technology programs, lamented to me that "we just didn't make our case well enough."

But Clinton's programs needed more than better salesmanship to counter the initiatives launched from the executive suites of top defense contractors like Lockheed Martin, Loral, McDonnell Douglas, and General Dynamics. Pooh-poohing dual-use and conversion initiatives, the industry argued disingenuously that it was conducting a highly specialized and commercially uncompetitive business and that defense cuts were threatening its existence. It demanded three things instead: first, massive new subsidies and permission to export arms more promiscuously; second, relaxed antitrust oversight complemented by equally massive new subsidies for mergers among the largest, most defense-dependent companies; and third, extensive privatization of military laboratories, arsenals, and depots.

The Clinton Defense Department acquiesced, despite the clear threat to the dual-use agenda. The $2 billion officially dedicated to "conversion" under Clinton was swamped by the billions more that Secretary Perry granted to defense companies for export promotion and for ephemeral "savings" from defense mergers. The Iron Triangle has been fortified. Consequently, the ability of national political leaders to shape the defense industrial base has diminished.


A New Deal for the Military

Two other recent books provide welcome historical perspective, probing the vast and obdurate security state and contemplating the enormous institutional overhaul needed to bring American defense industrial policy in line with post-Cold War realities. In Forging the Military-Industrial Complex, political sociologist Gregory Hooks argues that the defense program is first and foremost an exercise in industrial planning, with decisionmaking power lodged in the Pentagon. His project is to understand why this arrangement has persisted even though it runs counter to American beliefs about the proper relationship between government and business.

Hooks makes a unique and brilliantly researched case that the origins of the modern security state lie not in the emergence of the Cold War but in World War II. During the New Deal, power became more centralized in Washington. Planning became a legitimate government practice for addressing social welfare and security. As the country mobilized for war, Roosevelt pushed much of this social planning apparatus to the side, while handing over to the Pentagon the tools and credibility required for extensive government management of private-sector activity. The Pentagon's new planning powers, including extensive control over finance for building new defense plants and awards of enormous procurement contracts, led to historically unprecedented cooperation be tween the Pentagon and its corporate providers. In the process, public wariness of defense contractors, which in the 1920s and 1930s had been cast as war profiteers and "merchants of death," subsided.

The wall of separation between the military and civilian industrial sectors was also, Hooks argues, a product of business-state relations during the war. As a reward for lending the Pentagon "dollar-a-day" men to manage the defense industrial effort during the war, the nation's largest commercial companies won the right of self-governance after the war, when many New Deal labor and industrial planning initiatives were eliminated. Only the distinctive segment consisting of aircraft, defense electronics, and shipbuilding remained Pentagon-dependent. The larger business community was willing to tolerate Pentagon planning in these narrow defense-dedicated segments, because the state had adopted a more laissez-faire attitude toward industry as a whole

C. Wright Mills contended that military officers, once "only uneasy, poor relations within the American elite," achieved enhanced stature during and after World War II. Hooks argues that they won this new status during the construction of the national security state. As New Deal planning practices mutated into national security forums, military officers— not New Dealers or business leaders—emerged as the nation's planning elite and, joined by civilian specialists from within the Iron Triangle, have enjoyed relative autonomy since that time. As national security has become increasingly dependent on industrial planning, military officers and their civilian overseers have been able to define and implement industrial policy despite the reservations of prominent business leaders.

Several times in the postwar period, presidents and Congress have tried to limit the purview of this technocratic bureaucracy by deliberately creating new civilian agencies independent of the Pentagon—the Atomic Energy Commission, the National Aeronautics and Space Administration, the Arms Control and Disarmament Agency, and the Department of Energy—to pursue nonmilitary applications and influence industrial development in specific sectors. But in every case, as Hooks points out, most of the resources ended up directed to military ends. Even President Reagan, despite his staunch ideological opposition to big government, strengthened the Pentagon's industrial reach with the Strategic Defense Initiative ("Star Wars"), which Hooks calls "the most ambitious and expensive scientific and industrial policy ever proposed in peacetime."

By focusing on military bureaucracies, Hooks fills in a crucial gap in contemporary interpretations of postwar capitalist development. He suggests that the process of appropriating New Deal social planning techniques for the national security effort that took place during World War II might be reversed now that the Cold War is over. Unfortunately, he doesn't tell us how exactly to go about this or how to generate popular support for such an effort. The American security state may atrophy slowly over time, but it is unlikely to shrink to a size appropriate to smaller post-Cold War missions. The power exercised by the mature, well-organized defense-dependent industrial coalition outside of the state will not permit it.


Real Security

Gregory Bischak's essays in the collection Real Security offer the best modern characterization of what I like to call "supply-side resistance" to post-Cold War downsizing and institutional reform. Bischak, an economist and until recently the director of the National Commission for Economic Conversion and Disarmament, shows how extensively (if selectively) the security state reaches into civil society. Over the Cold War period, the Pentagon secured support and legitimation in the broader society by giving a number of important sectors an economic stake in maintaining a high level of preparedness. And by offering a consulting role to these sectors, the Pentagon created the impression that the planning process is relatively open. Bischak does a better job than Hooks of making clear the ability of political and economic interests, especially defense contractors, to influence security policy.

In Bischak's account, contemporary resistance to Pentagon reform and budget downsizing inheres in the de facto planning powers that have devolved onto the largest private-sector defense contractors. As military technology has become increasingly important relative to manpower, the initiative for fashioning national security policy has been shifting toward the research labs and drawing boards of these companies, which know more about the technologies they are creating than do their clients in the Pentagon. National security concerns endow this process with a high degree of secrecy, which further removes it from public scrutiny. Through their research and development programs and their seats on Pentagon advisory committees, the corporations wield considerable power to promote the arms race.

Bischak makes Adams's Iron Triangle an iron pentagon by adding two more angles—the physical branches of science and organized labor. Few Americans know that 69 percent of aeronautical engineers, 50 percent of oceanographers, and 34 per cent of physicists and astronomers are dependent on Defense Department projects, or that among blue-collar workers, 50 percent of aircraft assemblers and 20 percent of machinists are similarly dependent. Professional associations and trade unions provided support and legitimacy for the ongoing implementation of Cold War and associated industrial planning, and leaders in these fields have often been reluctant to call for defense spending cuts and transfer of resources to civilian agendas. Some prominent physicists, for instance, have quietly pressed for continued, expensive nuclear weapons research because otherwise "there will not be money for physics."

At last year's annual American Association for the Advancement of Science's Science and Technology Colloquium, economist after economist admonished the hundreds of scientists and engineers in attendance that their biggest competitor for science and technology spending will be entitlements. What the economists failed to mention, however, was the newly restored $11 billion in military pork barrel projects, an amount that could amply fund science and technology projects threatened with extinction.

Defense contractors, meanwhile, will continue to market whatever national security threat is consistent with the highest possible levels of spending. In the 1980s, in interviews with dozens of defense contractors around the country, I was methodically subjected to the same lecture on "the Soviet threat" before I was permitted to ask any questions. Today, the lecture would stress rogue states, or the more nebulous and unfalsifiable "it's still a dangerous world out there." Precisely because we don't know who our enemies are, this logic goes, we need to spend more defending ourselves against their surprise emergence.

Bischak, like Hooks, provides too few specifics on how to achieve the badly needed overhaul of the military industrial complex. But he does suggest where to find the political leadership for such an effort: in the scientific community. In a number of prominent historical cases, dissident scientists have challenged the technocratic basis for defense policies—on the effects of fallout from atmospheric testing, on the health and safety of nuclear weapons production facilities, on the deployment of antiballistic missiles. Indeed, dissent, debate, and organizing among physical scientists helped to build opposition to Reagan's extravagant Star Wars plans, a campaign marvelously translated into some of the period's best cartoons. Bischak argues that an activist campaign of scientists and engineers might be able to free scientific talent from its heavy reliance on the Pentagon and might reform the relationship between government and science. Indeed, this is what the Beyond Spinoff authors hope for with a civilian technology initiative, though with perplexing circumspection about the need to significantly downsize defense.

Bischak also looks to labor. Noting a number of historical instances when national union leaders have aggressively pushed for conversion and even spending cuts, Bischak says that disproportionate downsizing following defense cutbacks might mobilize labor to fight for conversion programs today. After all, defense companies are widely outsourcing and subcontracting, with resulting job loss shockingly outpacing sales shrinkage. From 1989 to 1994, Northrop's sales declined 5 percent in real terms—but its workforce declined by 27 percent. Similarly, McDonnell Douglas's sales fell by 2 percent, its workforce by 49 percent; Rockwell's sales fell by 11 percent, its workforce by 34 percent. And while Lockheed Martin increased its sales by 34 percent, it still cut almost 10 percent of its workforce, a pattern mirrored at Hughes and TRW. Some of this disparity results from displacement of jobs into subcontracting sectors but much of it is also due to productivity gains and offsets—agreements to produce large portions of weapons systems in buyer nations. It is for good reason that all over the country, unions have called for activist conversion planning in the 1990s. One weakness in union support for conversion, however, is that organized labor tends to call for conversion programs when cuts are necessary, but rarely opposes defense buildups and in fact lobbies strenuously for individual weapons sales when jobs are at stake.


The Unfinished Project

Sadly, neither the dual-use proposals of the scientists and technologists nor the conversion ideas of trade unions and peace activists have fared well under the Clinton administration. At the President's Economic Summit, that heady gathering of the newly powerful in Little Rock in 1992, the very first "call-in" for the President-elect and his roundtable of advisors came from a laid-off McDonnell Douglas worker from Long Beach, California, a single father of five who had been pointedly selected for the purpose by National Public Radio's John McChesney. It was a poignant moment. The caller's voice emanated from a loudspeaker hung at the apex of the huge hall, some hundred feet above Clinton, and it was as if the collected cast were suddenly looking to heaven for guidance. Summarizing his predicament, the caller said simply, "What are you going to do for me, Bill Clinton?" Clinton seemed tongue-tied and passed the buck around the table. A bit later, thoughts collected, he stressed his commitment to infrastructure and an aircraft industry policy.

But during the entire summit, where long analyses of the deficit problem, the welfare bureaucracy, and the health care crisis were served up with dazzling multicolor charts, not one presenter was invited to address the post-Cold War defense budget or the Pentagon bureaucracy. It is difficult to imagine Clinton saying he planned to end the Cold War as we knew it. In fact, no president since Eisenhower has possessed the credentials to warn against the excessive power and intolerable expense of the industrial-bureaucratic nexus formed around the Pentagon.

Meanwhile, despite the naysaying, a considerable amount of conversion has actually taken place. If considered broadly as the transfer of people, technologies, capital, and facilities to nondefense activities, the majority of firms of all sizes have managed to decrease their defense dependency and to increase sales to civilian markets. Many have made extraordinary efforts to shift gears internally, instituting cost consciousness in design and production, and bringing in outside talent, especially in marketing.3 Their modest success only underscores what might have been accomplished with a clear government program and effective conversion assistance. Unfortunately, by the 1990s, policymakers had forgotten the success of the GI Bill, the Marshall plan, and local business initiatives via the Committees for Economic Development, and left the business of conversion up to the firms themselves


Iron Geometry

Conversion works. So, however, does the Iron Triangle. Where private firms and communities have succeeded, they have done so despite Wall Street pressures to remain defense dependent, more in spite of the federal government (which provides too many incentives to remain defense dependent) than with help from it. In the United States, intensive research based on firm interviews and surveys is beginning to yield definitive evidence on where government assistance has been most successful: Government has been most effective in providing alternative markets for firms (mostly at the national level) and at providing timely technical assistance and bridging finance (mostly at the state and local level).

Yet the military industrial complex, for all its glamour and command over high-tech human resources, is but a modest portion of the American economy. Now down to about 5 percent of gross domestic product, albeit with a disproportionately large hold on American high-tech research and output, it is hard to see why the complex should necessarily prevail in its efforts to keep budgets up, liberalize arms exports, fashion giant companies, and pursue a potentially destabilizing weapons research agenda. The explanation, as Hooks and Bischak demonstrate, lies in the insularity of the Pentagon and its incestuous relationships with private-sector suppliers.

But the problem is also a failure of leadership. President Clinton's initiatives have fallen short precisely because he has been unwilling to rethink the security state and because he placed a cadre of high-tech military contractors and industry-friendly bureaucrats at the Pentagon's helm. Thus we will soon have to contend with the longer-term security consequences of a monopolized and internationalized supplier sector, where high-tech weapons funded in the U.S. proliferate worldwide.

The sparse population of academic analysts and critics with insider knowledge of how the security state operates are mainly talking to themselves. It may seem that Pentagon—industry overhaul is too complex and esoteric to attract public interest. But now the Cold War is receding into history. Military threats to our national interest have diminished. Global economic competition is intensifying. The problems of the poor and the elderly become ever larger social and fiscal challenges. Sooner or later, these facts will lead to upheaval at the Pentagon and force a reassessment of American defense conversion. Public vigilance at this juncture is badly needed. If America is to have a responsible military budget and an effective conversion strategy, advocates of employment, health, welfare, and environmental programs must speak out now. Defense planners should speak out, too: American security will best be served by a smarter, smaller defense program.

1Gordon Adams, The Iron Triangle: The Politics of Defense Contracting (Council on Economic Priorities, 1981).[back to text]
2Harvey Sapolsky and Eugene Gholz, "Private Arsenals: America's Post Cold War Burden," forthcoming in Ann Markusen and Sean Costigan, eds., Arming the Future, A Defense Industry for the 21st Century (Council on Foreign Relations).[back to text]
3See Bonn International Center for Conversion, Conversion Survey 1996 (Oxford University Press, 1996); Michael Oden, "Cashing-In, Cashing-Out and Converting: Resturcturing of the Defense Industrial Base in the 1990s," forthcoming in Ann Markusen and Sean Costigan, eds,. Arming the Future: A Defense Industry for the 21st Century; Jonathan Feldman, "Diversification after the Cold War: Results of the National Defense Economy Survey," Working Paper, Project on Regional and Industrial Ecoinomics, Rutgers University, January 1997.[back to text]

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