Military Surplus

Given the robust economy of recent years and President Clinton's avowed commitment to defense conversion and worker retraining, you might assume that displaced defense workers did rather well in the 1990s. They didn't. A majority of the nearly one million workers displaced over the past decade now work at jobs that pay less than their former jobs.

What happened? The basic answer is distressingly simple: Despite the euphoria over the rapid rate of U.S. job growth, manufacturing employment continues to take a beating. While the number of nonfarm jobs in this country has grown by almost 19 percent over the past decade, more than one million manufacturing jobs, or 5 percent of all such positions, have vanished since 1989. Some 381,000 manufacturing jobs have evaporated in the past year alone.

Though the Asian financial crisis, the North American Free Trade Agreement (NAFTA), and the widening U.S. trade deficit get most of the blame for the recent manufacturing-job slump, a more substantial and long-standing factor has been defense-industry downsizing. Defense procurement used to be a significant source of demand for manufactured goods and the seedbed for technological innovation in other key industries. But defense procurement has fallen by nearly 70 percent from its Cold War peak. As a result, defense contractors eliminated 922,000 manufacturing jobs between 1987 and 1996. When these displaced defense workers went to look for new work, they discovered that the job gains from the Carter-Reagan military buildup had masked a deep slump in civilian manufacturing. Older than the average worker--and often possessing obsolete skills--displaced defense workers had a difficult time finding new employment. One New England survey found that 18 months after layoffs, at least 30 percent of workers seeking assistance were unemployed or in training. What's more, a sizable minority of defense workers who did find jobs experienced an earnings drop of 50 percent or more.

U.S. defense industrial policy could have done more to mitigate the effects of defense-worker layoffs. Despite the opportunity to showcase exemplary new training, re-employment, and job-creation initiatives, defense transition policy got sidetracked into wholesale consolidation and restructuring of the military industry--a process that treated manufacturing employees largely as impediments to cheaper weapons production and forced workers to shoulder almost all the economic pain of downsizing.

The consolidation of the defense industry exacerbated military unemployment. The Clinton administration, using both behind-the-scenes negotiation and outright subsidies, encouraged a merger spree that reduced the number of large, specialized Pentagon contractors from 17 to 8. Consolidation was a boon for investors, fueling remarkable increases in the stock prices of large defense firms, which outperformed the Standard and Poor's 500 Index during the first seven years of the 1990s. But the pressure to consolidate overrode any incentive these companies otherwise had to diversify themselves beyond military production or to convert themselves to nonmilitary production. Thus, a key result of the extensive consolidation of the industry was--especially when accompanied by aggressive outsourcing among the smaller number of remaining companies--rampant job loss.

Still, former defense workers should not have ended up so poorly off. The range of services available to displaced manufacturing workers has improved significantly in the past decade, and a host of successful pilot programs have yet to be adopted on a wider level. A Department of Labor demonstration project in Groton, Connecticut, home of the General Dynamics Electric Boat submarine facility, revealed through in-depth assessments that the skills of former defense craft workers suited them best for building-trades work and succeeded in getting them certified for construction jobs.

In addition to innovative placement efforts like the Groton project, the Department of Labor has nine "dislocation aversion" projects, which fund incumbent-worker training in tandem with workplace reorganization or the development of commercial product lines. In Massachusetts, for instance, the Strategic Skills Program trained workers at 20 small and midsize firms in just-in-time inventory methods and statistical process control, helping to stabilize and recruit new business in the wake of defense contract losses. The Department of Labor's incumbent-worker-training funds and technical assistance, combined with strong local capacity in agencies like the Corporation for Business, Work, and Learning, encourage firms to take a constructive route out of their post-Cold War slumps. The "dislocation aversion" experiment was so successful that the Department of Labor has begun to finance incumbent-worker training as part of its regular assistance for work force development. These models have been proven and should have been deployed more widely.

The government has also failed to stimulate demand for goods created by the new industries that did grow out of defense conversion. Even in the best-case restructuring scenario, defense production jobs were bound to be eliminated. However, conversion activists sought demand-pull policies--public investments in civilian infrastructure and technologies that would breed new competitive sectors into which displaced defense workers could flow. The administration foresaw new jobs for defense workers in commercial spin-offs, as resources released from defense would move into renewable energy, pollution prevention and cleanup, transportation, and telecommunications. President Clinton promised that the Technology Reinvestment Project (TRP) would invest federal research-and-development funds in military-to-commercial diversification efforts that would generate high-skill, high-wage civilian jobs. The problem was that despite its interagency veneer, the TRP soon became a creature of the federal agency that administered it: the Department of Defense. Its mission was increasingly confined to the adaptation of commercial technologies into military equipment. Only 20 percent of the $1.4 billion allocated to the TRP between 1993 and 1997 was invested in civilian technology projects.

Without a complementary demand-pull strategy to create initial public markets for new technologies, there was little chance that technology policy would create new jobs. After all, it wasn't just research-and-development money that fostered today's high-tech industries; it was also a steady stream of purchases of computers, semiconductors, software, radar, satellites, and jet aircraft. But while President Clinton's 1992 election campaign and early incumbency were full of pledges about federal investment in intelligent vehicles, advanced pollution-abatement systems, and a revitalized maritime industry, deficit reduction quickly swallowed up much of the vaunted peace dividend. A few government policies in the 1990s--like the Intermodal Surface Transportation Efficiency Act (ISTEA)--have served as employment stimuli. But the relative weakness of demand-side strategies virtually assures that the job-creation potential of civilian technology investment remains limited.

The system of support for displaced defense workers is not only underfunded; it is also hampered by its excessive focus on low-skilled, hard-to-employ workers and by its general disconnection from economic development efforts. Disadvantaged workers also need government help, but they are a different population with different needs. Even though demonstration projects and the GI Bill confirm that preventive and educational strategies can make a major difference, the American worker-adjustment system remains minimal. Detached from explicit and implicit industrial policies, worker-adjustment efforts will not produce better results in future rounds unless the labor movement and political leaders press forward with new initiatives and funding. ยค