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Arming the Future: A Defense Industry for the 21st Century
Ann R. Markusen and Sean S. Costigan (eds.)
1999
1. The Military Industrial Challenge
Even as world leaders struggle to comprehend security in the post–Cold War era, they must consider pressing matters of defense industrial policy: the way nations go about deciding what kinds of weapons to develop or discontinue, and how best to produce or dismantle them. The stakes are high, because it is unlikely that world military spending will be increased appreciably in the foreseeable future. The expenditure of each dollar thus becomes just that much more important. The choices made, in turn, reverberate back on national security and economic competitiveness.
The challenges in developing a sound and workable military industrial policy are intellectually tough and politically eye-crossing. Should nations continue to keep existing production lines “hot,” at considerable cost, ensuring their availability in the future? Should resources be conserved by designing new weapons but delaying their production until needed? Should the United States and the European Union pursue innovation at all, given their impressive lead in military technology and the absence of credible adversaries? Should the Pentagon and its advanced weapons-making allies speed the dismantling of factories and facilities no longer needed, and if so, are mergers among large contractors the best way to achieve this? Should nations continue to buy domestic, or, facing fewer competitors, permit foreign firms to bid on major weapons systems? Should nations welcome foreign ownership of domestic military capability? Should they further privatize security-related supply and service functions? Should arms exports be encouraged as a way to achieve economies of scale and lower weapons costs, even if this speeds conventional arms proliferation? Should dual-use firms and production facilities be encouraged or discouraged?
In this book, we examine the American response to these challenges in the 1990s and on into the 21st century, with some attention to the European experience as well. The Bush and Clinton administrations have jumped all over the lot trying to answer these questions. Bush’s administration opposed mergers among large defense contractors and repudiated special programs for defense industry conversion. Rivalry between candidates Bush and Clinton in 1992 led to the sale of American fighter jets to Taiwan, angering the Chinese and sabotaging conventional arms control talks then under way. The Clinton administration encouraged conversion and diversification from the outset, but subsequently undercut these initiatives by liberalizing arms exports and welcoming “pure play” defense mergers. In 1997, it shifted gears again—Defense Secretary William Cohen’s adamant opposition drove Lockheed Martin to abandon its bid for Northrop Grumman in the summer of 1998, some five years after Secretary William Perry had jawboned the industry into a frantic search for partners. Similarly, policy toward foreign ownership has been muddled—in June of 1998, the Clinton administration agreed to the British firm GEC’s purchase of the American contractor Tracor, the largest foreign acquisition since the Bush administration scuttled the buyout of LTV’s defense business by French giant Thomson-CSF in 1992. Furthermore, there is the privatization bind: within a month of privatizing the government’s uranium-processing operation, alarms sounded as the new private owner began to accelerate the sell-off of uranium stocks, endangering a U.S./Russian agreement to prevent the latter’s nuclear materials from falling into the wrong hands.
Much of this drama arises from the clash between economic and security pressures. Policymakers are charged with maintaining an innovative edge in military technology while facing severe budget constraints and a vastly altered and somewhat opaque security environment. For a period in the 1990s, American administration leaders acted as if market-driven solutions to defense industrial base downsizing and reconfiguration would suffice. But more recently, the weaknesses in this strategy have become apparent. In 1997 incoming Acquisitions Chief Jacques Gansler put in place a much improved policy regime that opposes competition-eroding mergers, encourages new firms to enter the market, proposes to buy commercial where possible, anticipates designing but not building new weapons systems, and considers the possibility, previously unthinkable, of buying foreign. Nevertheless, for reasons that we explore in this book, these reforms do not yet comprise a fully coherent defense industrial strategy.
Here, succinctly, are the major policy problems and trade-offs and our prescriptions, tailored to the American case but applicable to the European case as well. First, how can the Pentagon ensure truly innovative designs and appropriately priced weapons? This is more difficult than before as a result of dramatic reduction in the number of large American prime contractors, from more than 15 to 4. The Pentagon either must intensify its regulatory oversight or must seek to expand the pool of competitors. The latter is preferable, but new domestic competitors are unlikely, and buying from foreign suppliers is problematic on both security and political grounds. Further mergers among large contractors, either domestic or transatlantic, should be discouraged, new entrants encouraged, and selectively buying foreign explored. But the Pentagon, in our view, has no alternative to improving the economic savvy of its staff and the efficacy of its industry oversight.
Second, how can the Pentagon have access to commercial technologies, which have surpassed their military counterparts, without risking accelerated proliferation and erosion of America’s technological edge? Efforts to buy “off-the-shelf” commercial components and encourage the integration of civilian and military research and development (R&D) and production activities, right down to the shop floor, have two great payoffs: better electronic, communications, and guidance capabilities for the armed forces, and a defense industrial base that is less dependent on government contracts, ameliorating pork-barreling activities that distort military priorities. But the inclusion of more commercial components raises the potential for more rapid diffusion of the sophisticated weapons that are at the heart of America’s security strategy. Here again there is no acceptable alternative to vigilant oversight of arms transfers and components trade.
Third, is it advisable for the U.S. military to have access to a wider array of weapons at lower cost by permitting the export of sophisticated weapons more quickly and to a larger number of countries? Liberalizing and promoting arms exports for economic reasons increases the risk of conflict elsewhere in the world, possibly drawing in the United States. It also accelerates pressures for costly next-generation weapons investments. We conclude, echoing the Report of the Presidential Advisory Board on Arms Proliferation Policy, that economic factors have no place in arms sales policy. Despite the intensification of arms export competition among allies in the 1990s, it is never too late to begin talking seriously about restraint.
Finally, from whom should the Pentagon buy weapons? This is not just a matter of soliciting winning bids. The Pentagon has considerable power to shape the size and global breadth of the industry through its role in antitrust approval, procurement awards, and privatization decisions. American policy must balance short-term gains in weapons cost against longer-term assurances that weapons design and production skills survive and provide choice for the armed forces in the future. It also must balance sovereignty issues against powerful market forces pressing for transnational defense firm mergers. Fortress America is no longer an option. American-designed arms will be bought and used by more nations in the future, and we may rely more heavily on foreign suppliers for components if not entire weapons systems. Our leaders have no alternative but to explore with our allies international agreements and machinery to streamline the defense industrial base, share its output, and control access globally. Otherwise, large private-sector corporations will be shaping our security strategy.
As the century draws to an end, the United States and its allies are enjoying a period of markedly diminished threat and relative stability in international relations. Indeed, for the foreseeable future, economic problems loom larger and are more likely to dominate foreign policy than is military confrontation. This affords us a period in which our leaders could take stock, slow new weapons innovation, and restrain arms exports while exploring a world in which weapons design and production, like so many other modern commodities, assume a more global character. The United States will continue to be the leader in this process, as it has been in the dramatic restructuring of global trade and finance. The new realities—an altered security challenge, confronting the escalating cost of high-tech weaponry and fiscal austerity—can be met best by cooperating more closely with our allies. Coordination must include a process for deciding how and where transnational mergers should be encouraged (or forbidden) and how arms-producing countries can share the jobs and economic activity attendant on arms design and production.
Four Post–Cold War Developments
What has happened since the end of the Cold War? Four developments, mostly unanticipated, stand out in what President Dwight D. Eisenhower once and enduringly dubbed the American military industrial complex. At the Cold War’s end, industry watchers forecast rapid contract cuts of as much as 50 percent. They expected defense contractors to reinvest their earnings, skilled workforce, and technologies in new nondefense products and markets, becoming smaller and less defense dependent. Large-scale mergers were not anticipated. 1 The more innovative thinkers were prescribing civil/military integration and dual-use technology development to enhance the quality of military equipment and quicken the pace of civilian technology spin-offs. 2 Both the Bush and Clinton administrations appeared to embrace these prescriptions as the decade commenced. Peace and economic development advocates pressed for active conversion policies that would help firms, workers, and communities adjust to downsizing quickly. 3
In practice, however, four quite different developments came to dominate post–Cold War restructuring in the 1990s. For one, after 50 years of relative stasis in the ranks of the largest defense contractors, a rash of defense mergers reduced the major competitors to a small number of relatively heavily defense-dedicated companies: Lockheed Martin, Boeing, Raytheon, and Northrop Grumman. (See Figure 1–1.) The mergers have enhanced the size gap between U.S. and European firms. (See Table 1–1.) The latter, fearing market dominance of American firms, have become increasingly preoccupied with finding partners themselves; the 1999 merger of British Aerospace and GEC is an outstanding example. Such merger activity may continue, absorbing smaller firms into these same giants. Defense contractors also are becoming increasingly international in orientation, selling larger shares of their output to foreign governments and engaging in strategic alliances, joint ventures, and even mergers with overseas counterparts. In consequence, new controversies about defense industrial base adequacy, character, and control are erupting around the globe.
In a second development, firms and governments in leading arms-producing countries have become more rather than less rivalrous in arms export markets, hampering progress toward controlling conventional arms proliferation. The U.S. share of world arms exports has risen dramatically, even in a shrinking world market. While American exports have fallen by more than 10 percent in real terms since 1989, the U.S. share has increased from 30 percent to 45 percent. (See Table 1–2.)
Traditionally viewed as a foreign policy tool, new weapons sales now are frequently approved and defended for economic reasons: to keep production lines “hot” and lower the cost of weapons to the American armed forces by achieving economies of scale. As highly sophisticated weapons are more freely shipped to problematic governments in politically unstable regions, calls have arisen for expensive new weapons research, especially in the United States. To some critics, this process amounts to America engaged in an arms race with itself.
Table 1–1: Major Defense Contractors by Nation, Sales 1995 Company Country Defense Revenues
$U.S. billionLockheed Martin United States 19.39 Boeing McDonnell Douglas United States 17.90 Raytheon/Hughes/Texas Instruments United States 11.67 British Aerospace Britain 6.47 Northrop Grumman United States 5.70 Thomson France 4.68 Aérospatiale/Dassault France 4.15 GEC Britain 4.12 United Technologies United States 3.65 Lagardere Groupe France 3.29 Daimler-Benz Aerospace Germany 3.25 Direction des Constructions Navales France 3.07 General Dynamics United States 2.90 Finmeccanica Italy 2.59 Litton Industries United States 2.40 Mitsubishi Heavy Industries Japan 2.22 General Electric United States 2.15 Tenneco United States 1.80 TRW United States 1.71 ITT Industries United States 1.56 Source: Economist, “A Survey of the Global Defense Industry,” June 14, 1997.
In a third development, the composition of the defense budgets has been shifting in favor of private-sector procurement and services over public-sector provision. This is the joint product of a longer-term shift toward greater capital intensification of warfare—the substitution of sophisticated weaponry for manpower—and a more recent trend toward privatization of defense research, services, and depots, both of which are expected to continue. Over time equipment and services purchased from the private sector (procurement) have grown more rapidly than payrolls for military and civilian Department of Defense (DoD) employees’ (pay), the former rising from about 45 percent of defense commitments to 54 percent. (See Figure 1–2.) Within procurement, the mix has favored continued production of several Cold War weapons, such as the B-2 bomber, despite analysts favoring more R&D and prototype development over production and despite forceful arguments from within the military and by independent analysts advocating less expensive and more effective weaponry. 4 American privatization and capital-intensive warfare is paralleled by developments in most countries around the globe, although governments in some countries, such as France and China, are reluctant to divest themselves fully of substantial public ownership and control of military industrial capacity.
Table 1–2: Arms Exports: Britain, France, United States (Millions of 1990 $U.S.), 1989–96 Arms Exports Share of World Market Exports/
ProcurementNation 1989 1996 % Change 1989 1996 % Change 1989 1996 % Change Britain 2,541 1,773 -30.2 6.8 7.7 14.2 28.32 25.49 -10.0 France 2,788 2,101 -24.6 7.4 9.1 23.4 15.26 15.80 3.5 United States 11,366 10,228 -10.0 30.2 44.5 47.3 14.02 17.44 24.4 Sources: SIPRI Yearbook 1997, Armaments, Disarmament and International Security (Stockholm: SIPRI, 1997); SIPRI Yearbook 1994, Armaments, Disarmament and International Security (Stockholm: SIPRI, 1994); 1996 Arms Exports and World Share from 1997 Yearbook, Table 9.1, p. 268; 1989 and 1996 Exports/Procurements from 1997 Yearbook, Table 13.8, p. 484, 1989 and 1996 Exports/Procurements from 1997 Yearbook, Table 9.1, p. 268, and Table 6A.1 and Table 6A.2, pp. 186–88. Figure 1–1 U.S. Defense Mergers in the 1990s Figure 1–2 Military Procurement: Pay, 1970 to 2000 (Millions of 1995 $U.S.) Source: Office of the Undersecretary of Defense, National Defense Budget Estimates for FY 1998 (Washington, D.C.: U.S. GPO, 1997), see Tables 6–8.
Table 1–3: Military Expenditures: 1985, 1990, 1994
Selected Countries (Index, 1994 = 100)Region 1985 1990 1994 Britain 115 106 100 China 95 93 100 France 94 98 100 Germany 165 147 100 Soviet Union/Russia 361 317 100 United States 118 117 100 Developing Countries 121 126 100 Industrialized Countries 164 152 100 World Total 155 146 100 Source: Bonn International Center for Conversion, Conversion Survey 1996 (New York: Oxford University Press, 1996), pp. 259–62, see Appendix A1.
Finally, progress on securing a post–Cold War peace dividend has been modest at best. At the macroeconomic level, despite substantial cuts in defense spending (see Table 1–3), the United States and most western countries have weathered the abrupt decline in defense spending rather well as vibrant economies absorbed people, facilities, and technologies released from the defense sector. 5
Table 1–4: Defense Employment Reduction
Selected Countries (Index, 1994 = 100)Region 1985 1990 1994 Britain 152 142 100 China 114 114 100 France 131 115 100 Germany 148 171 100 Soviet Union/Russia 192 205 100 United States 129 125 100 Developing Countries 117 114 100 Industrialized Countries 155 150 100 World Total 141 137 100 Source: Bonn International Center for Conversion, Conversion Survey 1996, pp. 272–74.
The transition has been more difficult in Russia and some developing countries, such as Egypt. Yet even in the United States, military spending cuts have merely reversed the effects of the 1980s buildup and have not fallen below average real Cold War spending levels of the 1970s. (See Figure 1–2.) Remarkably few production lines have been closed down. Success in conversion, diversification, and new start-ups—all methods for the successful transfer of people and technologies into civilian activities—has been mixed. Civil-military integration, championed as a way to lower weapons costs, improve weapons quality, and ameliorate displacement, has been slow to materialize. Promising “dual-use” initiatives have been undermined by cross-cutting government incentives encouraging the creation of “pure-play” defense companies and promoting arms exports. When transformation occurs, and there are quite a few success stories, often it takes longer and is riskier than it need be, in large part because a forceful conversion strategy has not evolved.
What do we know about these developments? Which forces caused and shaped them? What do they mean for future defense industrial policy? These are the subjects of the studies in this book. 6 All are original research papers commissioned by the Council on Foreign Relations Study Group on Defense Consolidation, Downsizing, and Conversion in the U.S. Military Industrial Base. Many of them offer new data and original interpretations of the changing defense industry and its capabilities. Each was debated in depth at the Council by a broad-based study group. Some have been published in abbreviated form, and several already have had a considerable impact on the policy debate.
Together, the authors examine the post–Cold War defense industry challenge: How can the United States and its allies shepherd their defense industries in a period of abrupt and deep cuts in defense demand while simultaneously repositioning to meet new and unusual threats that are not yet well defined?
Changes in defense-related arms production worldwide and in the United States demonstrate just how formidable a challenge this has been. Worldwide, employment in arms production fell by 29 percent between 1985 and 1994 (see Table 1–4), by more than 4.8 million jobs. In the United States, private defense industry employment fell by 45 percent from 1987 to 1999, or by 1.6 million workers. Another 1.1 million jobs were eliminated in the U.S. armed services and Department of Defense. (See Table 1–5.)
Table 1–5: Defense-related Employment: 1987–99 (Millions of Employees) 1987 1999 Percent Change
1987–99Percent Change
1987–99Uniformed DoD 2.24 1.49 -0.76 -34 Nonuniformed DoD 1.13 0.75 -0.38 -34 Private
Defense
Industry
Employment
(direct & indirect)3.67 2.03 -1.64 -45 Total 7.04 4.26 -2.78 -39 Source: Office of the Under Secretary of Defense, National Defense Budget Estimates for FY 1998, Table 7–5 (Washington, D.C.: U.S. Government Printing Office, 1997).
Confounding the adjustment process, future defense requirements have been difficult for defense contractors to anticipate. Uncertainty about the location and magnitude of future security threats have led to remarkably divergent proposals for defense strategy and budgets, ranging from in excess of $300 billion to as low as $90 billion for the United States. 7 Shifts in policy attendant on presidential, parliamentary, and congressional turnover have muddied the waters in most of the largest arms-producing nations. Many countries, including the United States and France, plan modernization programs whose price tag is inconsistent with deficit reduction goals, and projects like the Eurofighter are kept alive despite grave reservations about the quality of the resulting craft and the existence of a market for them. 8
Most chapters that follow focus on the United States. As the world’s emerging hegemon, largest defense spender, uncontested defense technology leader, and host of the world’s leading defense firms, the United States can be seen as a laboratory for experiments in defense industry adjustment. Many of the developments emerging in the American case were swiftly adopted elsewhere, as the chapters on Europe demonstrate. As a group, the authors cast light on the “why” of mergers, arms exports, privatization, and conversion and speculate on the role that the restructured industry is playing in the twin dramas of American security and American economic competitiveness. Each addresses policy issues that are posed by new developments, and not all of them come to the same conclusions. In the final chapter, we sort through the often-conflicting recommendations. Here we briefly summarize the major contributions of each author, with passing reference to other recent writing on each theme.
The Post–Cold War Security Environment: Pentagon, Congressional, and Contractor Responses
In an otherwise lively and contentious arena of debate, few analysts would disagree with the proposition that the size, composition, and output of the defense industry should be driven by American security strategy and not vice versa. 9 Yet in the wake of the collapse of the Soviet threat, no clear, coherent defense policy has emerged. 10 The two-theater, go-it-alone official American posture, reaffirmed in the 1996 Quadrennial Defense Review, anticipates U.S. ability to fight two Persian Gulf War–scale conflicts simultaneously without major allied support. 11
The policy is controversial, for several reasons. First, the likelihood of two regional conflagrations erupting at once is very small. 12 Second, collaborative efforts with allies are becoming more common, potentially diminishing the demands on American forces. 13 Third, terrorism and weapons of mass destruction, especially chemical and biological weapons, constitute increasingly likely sources of threat that cannot be countered easily with conventional weapons. 14 Fourth, fiscal austerity and competing priorities in the industrialized countries constrain the public-sector resources available for defense spending. 15 Fifth, peacekeeping missions are coming to assume a greater share of defense resources. Peacekeeping is a relatively labor-intensive activity, in contrast to the power projection employed in situations like the Gulf War. Despite these epochal changes, defense policy remains heavily dominated by Cold War–era thinking. The absence of a clear vision of future security challenges tends to grandfather in obsolete weapons systems, a phenomenon that is increasingly indefensible on both security and affordability grounds.
As a consequence of these changes, a number of quite radically different visions of U.S. security strategy have been proposed by experts and analysts outside of the Pentagon. These range from the “two-theater” strategy of the Bush and Clinton administrations to the cooperative security scenarios of William Kaufmann and John Steinbruner at Brookings, to the “defense-only” proposals of Randall Forsberg at the Institute for Defense and Disarmament Studies. 16 In Chapter 2 Greg Bischak evaluates five of these for their implications for the American defense budget and defense industrial base. In an analysis unavailable anywhere else, he shows a stunning range of disparity in budgetary requirements, from $260 billion currently to $180 billion for the cooperative security scenario and $87 billion for a defense-only posture. Bischak also concludes that these different security scenarios have markedly different implications for the defense industrial base. A cooperative security strategy, for instance, would place greater emphasis on civil-military integration and interoperability with allies, resulting in lower procurement and a somewhat slower rate of technological innovation and weapons modernization. The purely defensive strategy would deemphasize new weapons research and development, changing the composition of defense spending and enhancing opportunities for civil-military integration. It also would cut back severely on arms exports, resulting in a smaller defense industry. Strategies that emphasize peacekeeping, prevention, and the strengthening of international institutions also would imply a smaller arms industry, as nations increasingly pursue nonmilitary and nontechnological means of resolving differences.
Bischak concludes that the United States must choose between a go-it-alone security policy committed to power projection and American technological leadership and one based on cooperative security initiatives with greater emphasis on negotiation, peacekeeping, and partnership. The latter, which he favors, is compatible with the new efficient, dual-use emphasis at the Pentagon, while the former is not.
The next three chapters document the major decisions that were made by defense contractors, the Pentagon, and Congress over the tumultuous years immediately following the end of the Cold War. The period from 1989 to 1997 provided an unusual window of opportunity for the industry to reshape itself and for the Pentagon to shepherd this process and revamp its procurement system. In the American case, Michael Oden demonstrates, in Chapter 3, that the largest defense firms, flush with cash but facing deep cuts in long-term orders, initially undertook quite disparate strategies. Some—Lockheed Martin, Northrop Grumman, General Dynamics—concentrated on downsizing, merging with competitors, and increasing sales to overseas markets. Others—TRW, Hughes, Rockwell, Texas Instruments—invested internally in moving people and technologies into new product lines in civilian markets, often building on conglomerate strengths. Oden’s analysis shows that up through 1994, firms in the latter group reinvested more of their earnings in R&D, achieved lower defense dependency ratios, and did as well or better in terms of profitability than those who sought to consolidate or expand their defense specialization.
During this period, Oden shows, the U.S. government relayed mixed signals to defense firms. On the one hand, new dual-use incentives, such as the Technology Reinvestment Program (TRP) and procurement reform encouraged diversification into civilian fields and civil-military integration. 17 On the other hand, increased permissiveness toward mergers and arms exports, and expanded subsidies for both, encouraged corporations to consolidate and focus on defense markets. 18 Oden contests John Dowdy’s favorable assessment of the outcome of the merger strategy and offers support for concerns raised both inside and outside the Pentagon. 19
Oden also shows that smaller firms have been more successful than is generally understood in surviving post–Cold War budget cuts. Many have downsized, but most have reduced their defense dependency and expanded nondefense sales. Oden contests other research that suggests defense firms are not specialized. 20 They must overcome formidable handicaps, he argues, and several factors are key to their ability to do so: management commitment, often following a “shock” of recognition; radical reform of management, marketing, and production practices; and successful collaboration with other companies and/or public institutions, often facilitated by regionally based economic development efforts. Oden’s work confirms the cautiously optimistic view of industry insiders such as Richard Minnich and counters the pessimism of others. 21 Oden argues that firms’ success with dual-use and conversion initiatives is evidence for the feasibility of civil-military integration and more rapid technology transfer but that countervailing Pentagon policies on exports and consolidation threaten to undermine their achievement.
In concluding, Oden recommends drastic changes in American defense policy. The nation could maintain its ability to meet all conceivable security challenges and spend one-third less doing so by relying on vigorous arms control and nonproliferation policies, smaller and more mobile armed forces, and a more diversified and less defense-dependent industry. The savings as well as the benefits of dual-use technology, he argues, would enhance American economic strength and usher in a period of sustained prosperity.
Why did the Bush/Clinton dual-use initiatives fall short? In Chapter 4, a close-up analysis of the TRP, Jay Stowsky examines the construction and subsequent dismantling of this major initiative. The TRP offered several billions of dollars in competitively allocated grants to encourage defense firms to team with others to move promising technologies back and forth between the civilian and military sectors. He shows that the program was carefully and deliberately structured to maximize long-term payoffs and to avoid pork-barreling, with ironic consequences. Few members of Congress felt invested in the program, since it indeed was well insulated from pork-barreling pressures. Furthermore, the competitive process ensured that there would be scores of disgruntled losers, undermining defense industry support. The largest, best-positioned contractors, moreover, were hostile to the program’s potential for creating competitors and new technologies that might undermine their own market positions. Trade unions were disappointed at the weak links between the TRP and demonstrable job creation, especially since it was the single largest conversion initiative in dollar terms.
When control of Congress changed hands in 1994, Republicans earmarked the TRP for total elimination, reflecting their antipathy toward technology programs in general and the search for budget savings, partly spent on weapons purchases beyond the president’s request, which critics hailed as pork. In retrospect, Stowsky argues, the TRP might have fared better had it been embedded in broader public missions (environment, transportation) and provided demonstrable results more quickly. 22 Furthermore, while the TRP was designed to be an interagency initiative, the lead role played by the DoD led to the reassertion of military priorities and an emphasis on “spin-on” rather than spin-off. Thus, he argues, its broad base of support was undermined even before the Republican congressional attack that all but eliminated it by 1996.
Stowsky concludes that there remains great potential for American technology policy in the coming decades. The Pentagon has no choice, he argues, but to pursue dual-use technologies, although their prospects are better via the slow and more prosaic procurement reforms than in flashy new programs like the TRP, which may become lightning rods for criticism. And, he argues, American economic leadership in the world will be contingent on replicating the Cold War experience in other mission areas—in communications, biotechnology, and transportation, for instance. Public investment in basic R&D and in pioneering applications will be fundamental to such American leadership. The lessons from the political blunders of the 1990s are that our leaders must become more savvy on selling new missions to the public and on working gingerly with the American Congress on matters of public support for science and technology policy.
Congress is indeed, and perhaps increasingly, a major player in determining the level of the defense budget and its composition, although its sway over arms sales appears to have diminished. 23 Options for future weapons research and force structure are first contemplated deep within the Pentagon in consultation with the armed forces and defense contractors. 24 And presidents, through their foreign policy agenda and their control over the budgetary process, especially in making trade-offs between domestic and military spending, also play a powerful role. But in the post–Cold War period, pork-barreling pressures increasingly managed to insert themselves into the final drama in Congress. Large, platform-building projects—Seawolf submarines, aircraft carriers, fighter jets—often support whole communities (Groton, CT; Newport News, VA; St. Louis, MO). Similarly, the $30 billion the United States spends annually on the nuclear weapons complex has created constituencies (Hanford, WA; Los Alamos, NM; Savannah River, GA) whose livelihoods are dependent on continued nuclear weapons research, stockpiling, and cleanup.
In Chapter 5, a fascinating account of the first two years of the Clinton administration, the first post–Cold War opportunity for a Democratic Congress and president to work together on a downsizing and conversion agenda, Paul Walker, then senior policy adviser to the House Armed Services Committee, illustrates the corrosive pressures that special interests, bankrolled by industrialists but often supported by unions and community groups, exert on rational decision-making about defense. Initial Clinton proposals for deeper spending cuts and a vigorous conversion program were stymied in a Democratic Congress by the inertia and vested interests in existing procurement programs. The long-awaited Bottom-Up Review ended up grandfathering in most Cold War weapons systems, and the Nuclear Posture Review yielded a disappointingly status quo document. Efforts to rein in the arms trade were similarly thwarted, as were efforts to fund conversion programs adequately.
Walker argues that Congress is more important in this process than is generally understood. Political scientists generally depict defense planning and budgets as fundamentally set in place by the executive branch and then merely tinkered with, give or take $10 billion, in Congress. But Walker shows that both the Pentagon and the president continually consult with Congress and second-guess what may be palatable. Thus much of what they propose to Congress is already qualified by sensitivity to constituent demands and political muscle.
Walker warns that much of what dominates congressional/White House scuffles over the defense budget remains tied to Cold War mentalities. He advocates serious threat assessment and concomitant force sizing and procurement strategies, akin to what Secretary Les Aspin initiated while still in Congress but failed to follow through in the Bottom- Up Review process. He predicts that procurement expenditures will fall even without a well-thought-out strategy overhaul, the victim of deficit hawks, public indifference, and other pressing public priorities. He sees this as an ideal time to rethink national defense strategy and calls on the president to lead in this effort.
Was There a Peace Dividend Over the Decade of Post–Cold War Demobilization?
The answer is yes, at least at the macroeconomic level. 25 Savings from defense budget cuts were applied principally to deficit reduction, however, rather than to public-sector initiatives that might constitute new markets for defense contractors. In a recounting of $81 billion in defense cuts from 1993 to 1997, Greg Bischak concludes that 80 percent of it went to reduce the federal deficit, with the balance going to broadly construed conversion programs. Involuntarily retired members of the armed services have received on the whole quite good benefits and readjustment assistance ($3.4 billion); defense workers fared less well. New initiatives to stimulate defense technology received $16.5 billion, but only a fraction of these—Bischak estimates 12 percent—had any real conversion component. Less than $5 billion, under $1 billion per year, went to fund new missions in environment, energy, transportation, and infrastructure. Government investments in alternative-fuel vehicles, urban traffic management systems, “smart” cars, and communications technologies have provided attractive new markets for defense contractors, however, as have new opportunities on the social services side of the budget. Lockheed Martin has, for instance, ex-panded its business into the administration of welfare systems.
The Consequences of Defense Industry Consolidation
In this post–Cold War decade, just how has the defense industrial base changed and what do these changes mean for the future? In Part III, three chapters present evidence and arguments about the pace and character of defense industry transformation. Writing from concern over defense industrial base performance, Erik Pages argues in Chapter 7 that rapid consolidation in the industry overrides incentives to integrate and diversify across market and international boundaries. 26 Seeing the Pentagon as increasingly dependent on an emerging set of large defense conglomerations, he argues that several negative consequences may follow: a rise in the cost of defense equipment, diminished technological innovation, and a chilling effect on international defense cooperation. 27 Pages concludes that a market dominated by large conglomerates may require a more activist government tightly regulating production and steering contracts to nurture the industrial base rather than to reflect purely market demands. He also advocates the use of various proxy tools to help further stimulate competition in the defense sector. These ideas include design bureaus, more aggressive use of prototyping, and a further expansion of dual-use research and development.
Pages recommends that policymakers aggressively pursue acquisition reform, actively regulate defense-unique firms, and search for proxies to enhance competition among suppliers. He argues for a Pentagon less acquiescent and reliant on market forces and more willing to build new institutions and explore new regulatory arrangements. It might, for instance, want to create independent design teams where it faces monopolization, or buy foreign where politically feasible.
Harvey Sapolsky and Eugene Gholz demonstrate in Chapter 6 that despite large budget cuts and mergers, very few large-scale weapons production lines actually have been shut down. Many are operating at far below capacity, and large numbers of workers have been laid off. Nevertheless, duplicative shipyards, aircraft plants, and other production facilities are kept going in a variant of the famous Kurth “follow-on” imperative. 28 In other words, the causal link between mergers and capacity elimination, a major rationale for Pentagon encouragement of mergers, has not been borne out in recent experience. Mergers have not relieved the Pentagon of the difficult job of eliminating capacity, and the persistence of such capacity generates intense pressures for pork-barreling.
Sapolsky and Gholz also document a secular trend toward greater privatization of military activity. They show that over the past two decades, the ranks of people working directly for the armed services or as DoD civilians have fallen while those working for defense contractors have risen, a counterpart to the shift in the composition of spending shown in Figure 1–2. Privatization of depots, research laboratories, and other civilian DoD functions has become a major Pentagon priority. 29 This trend, combined with the shrinking number of defense contractors, is creating what Sapolsky and Gholz call the “private arsenal” problem in the United States. They consider a number of policy responses, ranging from public takeover, to the introduction of greater competition by requiring the armed services to compete with one another for missions.
Sapolsky and Gholz conclude that even belatedly, we need a plan to demobilize industrially from the Cold War. They counsel getting rid of unneeded production capacity while protecting vital design teams and facilities. They recommend “paying the bill” for the closures—an exit strategy that would effectively eliminate capacity while doing as well by defense workers and their host communities as the Pentagon does routinely for military personnel and communities that host bases. They also, provocatively, call for the construction of a public arsenal system even while defense firms remain nominally private. They would replace our current acquisition system, in which companies lose money on R&D and gain it back on long production runs, by one that pays handsomely for R&D but renders large-scale production contracts the exception rather than the expectation.
The consequences of defense industrial restructuring through mergers, increased exports, and privatization are surprisingly underresearched. In Chapter 8 Ken Flamm argues that the industry has played a lead role in initiating these changes and that the Pentagon did not have a well-worked-out strategy. Although a few studies have been done of the adequacy of defense industrial capacity in a number of subsectors, no overall assessment of the projected size and competitiveness of the American defense industrial base was available to guide the Pentagon in responding to the proposed defense mergers. 30 Flamm demonstrates that such an assessment can be done and argues for the importance of building this capability in the Pentagon. Nor did Pentagon officials choose to follow the advice of a number of commissioned studies suggesting that rivalry in design and development capacity could be maintained if the Pentagon paid careful attention to mergers. 31
The arguments favoring the mergers were made on the basis of economies of scale and scope. 32 Since the demand for weapons systems is way down, the logic goes, it is inefficient and costly to taxpayers to maintain two or more producers of fighter planes or submarines when one would suffice. Scale economies are an issue, as most thoroughly analyzed in the case of fighter aircraft. 33 However, the elimination of competitors creates the potential for monopolistic pricing, especially problematic in this industry where cost-plus contracts are the rule and where the seller often knows more about the performance of the product than does the government buyer. In addition, economists worry (and history offers some evidence) that without competition, designs will be less innovative. Flamm shows how to model these trade-offs and illustrates his approach with the case of tactical missiles. His framework goes considerably further than other efforts to date.
The Push to Export
Because excess capacity, expanded greatly in the unprecedented peacetime buildup of the 1980s, poses such a problem in a period of rather rapid defense budget cuts, military industrial firms and their trade associations have pressed hard for relaxation in arms export controls in the post–Cold War period. They have argued, quite successfully in the U.S. case, that production lines can be kept “hot,” and thus available for future unknown demand, only by producing for overn pavements having the two types of concrete shoulders.
The type of shoulder used also affected cracking for recycled pavements. A significantly greater number of cracks occurred in pavements having concrete shoulders with sympathy joints compared with those having concrete shoulders without the joints. This is reasonable, considering the tendency for cracking in the mainline pavement adjacent to shoulder sympathy joints.No significant difference in number of cracks per slab was found between slag unt to as much as $6 billion to $7 billion a year. 34 For the first time economic considerations are acknowledged formally in review of arms exports permits. 35 The rationale for these changes centers on lowering costs to the American taxpayer. The argument goes that if the overhead costs of keeping the F-16 line open, for instance, can be spread across many more customers, then the cost of current and future units to the Pentagon will be just that much lower. Flamm is critical of this argument for its failure to assess the increased threat associated with these sales or to include the costs of further weapons R&D necessitated by the proliferation of such weapons to not entirely reliable regimes. Flamm suggests that before further contractor marriages are blessed or weapons sales approved, a rigorous modeling of the multiple costs and benefits of each action be undertaken by the Pentagon. There is considerable debate about whether lines need to be kept in service at all. One group of analysts and strategists—Flamm and Jacques Gansler among them—argue that countries like the United States would be better off investing in R&D and prototype development, while upgrading the existing, ample stockpile of weapons.
The nature of the economic pressures to export are the subject of Chapter 9 by David Gold. On the macroeconomic side, Gold notes that generous offset agreements undercut the economic payoff to arms exports, making it difficult to determine the net benefits for the U.S. economy in terms of jobs and spending flows. To the extent offsets increase import competition, there is a shift of resources to arms-exporting industries from firms and workers in industries whose output must compete with foreign nondefense goods marketed by defense firms. Where offsets take the form of overseas production of whole weapons or components, they are a conduit for technology transfer that may have adverse security and economic consequences in the future. As for the industrial base maintenance issue, Gold shows that the government’s promotion costs add up to more than half of the proceeds of arms export sales and two-thirds of the value of new orders. He finds it difficult to believe that unit-cost savings from spreading fixed costs over a large production run could possibly justify such an extraordinary level of subsidies (over $7.7 billion in 1995). Moreover, the government, which bears the bulk of the fixed costs of capital investment and R&D, has bowed to industry pressure and removed recoupment fees from most arms sales, meaning that exporting firms and buying nations are the beneficiaries of whatever cost savings are derived from larger production runs. The socialization of costs and privatization of benefits that characterize the arms trade for the United States appear to have reinforced incentives to expand arms sales.
The proliferation of conventional weapons via the arms trade, Lora Lumpe argues in Chapter 11, poses central security concerns. Lumpe shows that arms makers and governments are exporting top-of-the-line systems previously not for sale, dramatically raising the standards of weaponry in regions such as the Middle East. In addition, some buyers are now demanding, and getting, the technology to make weapons themselves rather than buying them off the shelf. Exporting has also become less discriminating, with weapons sold to nondemocratic or unstable governments and into sensitive regions without even the effort to influence buyers’ behavior that once accompanied such sales. Despite concern about the security consequences from a broad spectrum of critics inside and outside of government, the Bush and Clinton administrations have continually liberalized arms exports, most recently to Latin America, for reasons that are more economic than strategic. 36
Lumpe proposes a two-pronged toughening of export policy, screening on the basis of buyer and weapons system. Sales would be made to a country only if it meets standards of conduct in human rights, democratic governance, and nonaggression—reasonable correlatives with peace and stability. Sales of the most dangerous weapons also would be barred under Lumpe’s regime, adding to current bans on ballistic/cruise missiles and land mines items such as diesel attack submarines, advanced bombers, cluster bombs, and fuel air explosives on either proliferation or humanitarian grounds. Lumpe argues that lead producing countries, such as the United States, should unilaterally pursue such a strategy while simultaneously seeking multilateral agreements.
The increasing importance of commercial computing, electronics, and communications technologies to leading-edge weaponry throws a potential wrench into the arms control works. To the extent that technologies are genuinely “dual use,” it is difficult to control their spread around the globe. As Judith Reppy explains in Chapter 10, historical research shows that the term “dual use” was coined first in the late 1940s during the formation of the Coordinating Committee for Multilateral Export Controls (COCOM) regime. Then it was employed strictly in the interests of national security and used as a screen to bar exports, including civilian commodities, which might be incorporated into problematic weapons. Over the decades and especially in the 1980s, Reppy demonstrates, the term came to connote a strategy for enhancing economic competitiveness through military spin-off and cross-fertilization of contemporary dual-use initiatives, especially when combined with relaxation in arms export oversight.
Reppy addresses the downside of dual-use technology initiatives: their potential contribution to proliferation. She analyzes the factors that impede or facilitate technology transfer and asks whether it is possible to encourage civilian and military integration in an increasingly globalized defense industry without also encouraging undesirable technology transfer to other countries. Persistent problems in negotiating international agreements for control of dual-use technologies suggest that it may not be. Taking issue with most of the other chapters, Reppy concludes by suggesting that, because of the danger of proliferation, it may be preferable to retain a separate defense industrial base, reconsider our dual-use strategy, and even consider restricting access to university-based training of foreign nationals in defense-sensitive areas.
Defense Industry Globalization
As the century draws to a close, the defense business is becoming less and less a predominantly domestic activity. Exports are increasingly important as a percent of sales, as Table 1–2 shows for the United States and France. Although governments have not cooperated very successfully in integrating and rationalizing their procurement strategies, the private sector has been exploring ways to globalize capacity through mergers, coproduction agreements, and offset arrangements. In Chapter 12 Richard Bitzinger, using a longitudinal database constructed while at the Defense Budget Project, documents the extent of these alliances. He reiterates the warning that the private sector is well ahead of the government in this process and that globalization without oversight poses dangers of increased conventional arms proliferation. But Bitzinger also examines the resistance to a truly international industry. 37 He senses a trend toward continental consolidation in which a North American complex goes head-to-head with a European complex, exacerbating inefficiency and creating the potential for further proliferation, as each tries to utilize capacity by selling to the developing world.
European nations led by Britain, Germany, and France are attempting to cooperate on security strategy and armament policy. 38 But they are hamstrung by historical and institutional differences and by corporate and community fear of displacement. In Chapter 13, a survey of post–Cold War European security and procurement policy, John Lovering notes that the Community is lurching toward a collective security strategy, especially in the formation of the Western European Union, but that defense sectors are exempt from the integrative processes and market discipline imposed on other industries. Even on the security front, tensions over sovereignty are far from resolved, and domestic regime changes can sabotage progress. In the defense sector, a preference for creating and defending national champion firms places roadblocks on the path to an efficient, integrated European military industrial complex. Lovering raises the interesting prospect that disarray in the European market might result in transatlantic mergers instead.
Europe offers a window into alternative configurations for a defense industry and varying strategies for post–Cold War downsizing. Lovering notes that German industry always has been more “dual use” in character, facilitating the rapid downsizing of the past few years. France, on the other hand, has supported a large, specialized, and quasi-nationalized sector, relatively dependent on exports. French nationalism and vulnerability to displacement, a function of both the size and specialization in the sector, has resulted until recently in maintenance of relatively high defense budgets, reticence to buy internationally, and greater efforts to export arms as a solution to excess capacity. Britain, Lovering shows, pursued a strategy of vigorous downsizing and outsourcing under Prime Minister Margaret Thatcher, for whom free-market ideology prevailed over national interests. Britain thus became more willing to import weapons if superior to or less costly than domestically produced ones and was less concerned with American buyouts of defense companies. However, since 1996 British policy has backtracked, and the new labor government may restore “Buy British” practices.
When the Berlin Wall fell and the Soviet Union democratized without bloodshed, many expected the West to reap a huge peace dividend, the payoff from decades of an expensive Cold War arms race. The realization of this dividend was pressing, because the protagonist countries were becoming increasingly challenged by economic competition from emerging Asian countries, whose blend of low-wage labor and increasing technological sophistication was fueling growing American and European trade deficits. President Clinton in particular envisioned the transfer of workers and technologies into commercial aircraft, electronics, communications, transportation, and shipbuilding expertise. American and European governments designed and funded, albeit modestly, new initiatives in conversion to facilitate rapid transition of people, plants, and equipment from military to civilian activities.
How much conversion actually has taken place, and how much of it can be credited to government programs? In both the American and the European cases, rather remarkable progress in conversion and diversification has been achieved, more than is acknowledged by certain academic and corporate naysayers. Many military bases have been converted into civilian uses, although the process is taking longer than it should. Many firms, large and small, have successfully lowered their defense dependency by developing new products and expanding civilian sales. However, government programs have played a relatively minor role in this drama, chiefly because they are underfunded and, in the U.S. case, under ideological attack.
Surveying the European case, in Chapter 14 Michael Brzoska, Peter Wilke, and Herbert Wulf relate a post–Cold War scenario quite similar to that of the United States. In the leading European arms-producing nations—Britain, France, Germany—the excess capacity problem is exacerbated by the relatively small size of national markets. By and large consolidation has taken place on a national rather than Europe-wide basis, because intense industry lobbying and other, overriding political problems with European integration have thwarted attempts at creating a pan-European sector. A common West European or European Union foreign and security policy concept does not exist yet. Additionally, since time schedules for procurement of weapon systems are not synchronized among West European countries, unilateral decisions are still likely in the future. These trends, in combination with the continued political will to favor national champions, will hinder the process of forming a competitive West European defense industry.
In general, the largest European nations have officially left adjustment in the hands of private sector companies, which have been modestly successful at conversion, especially in the sense of moving people and technologies into commercial product lines. National governments, facing tight budget constraints and other competing societal demands, have been unwilling to commit resources to conversion, although Brzoska, Wilke, and Wulf note that conversion nevertheless takes place within a labyrinth of historically evolved incentives and institutions that help support industries and workers. In addition, the European Parliament, despite opposition from most member states, created and funds a relatively generous program, KONVER, which offers assistance to regions and firms faced with base closings and contract losses.
Variations across the four countries in post–Cold War industry restructuring are instructive. Germany has been able to lower its defense budget fastest, chiefly because of unification and associated investment and social spending priorities. Because of its historically delimited shape and relatively strong dual-use character, German industry has had a relatively easier time adjusting. France has been least successful to date in lowering its defense budget and reshaping its military industrial base. With large defense-dedicated and quasi-public farms, change has come slowly. In the mid-1990s, however, French leaders finally decided that an autarkic military industrial strategy was simply too expensive and, under Jacques Chirac, are moving toward a dramatic downsizing and privatization of their industry. French strategy, however, probably will continue to promote “national champions.”
An Industry for the Future
The original research and insights of our authors suggests that what we have elsewhere called “supply-side resistance” has been the major impediment to achieving both an appropriate 21st-century defense industry and a peace dividend. 39 Profit, technology, and job considerations are driving defense policy in ways that were inconceivable up through World War II. Although the Bush and Clinton administrations did undertake defense cuts, these were modest compared with potential savings, and their allocation was ill-suited to new realities. The Clinton dual-use and conversion initiatives were cross-cut with powerful new signals to large defense contractors to remain “pure-play” providers, both via arms export policy and via a historically unprecedented permissiveness toward mergers, as well as billions in new subsidies for both.
In Chapter 15 we sum up the policy issues facing the United States and its major defense industrial allies as we enter the 21st century. First, the absence of consensus on what constitutes the contemporary threat makes intelligent defense planning and budgeting very difficult. Second, solid research evidence on the appropriate size and composition of the defense industrial base is alarmingly lacking. We propose a thorough review of competing industrial base configurations, linked to a set of potential force structure scenarios. Flamm’s work demonstrates that this can be done without much difficulty. Given recent evidence from the General Accounting Office that actual savings from mergers are amounting to only a fraction of those promised, we recommend the elimination of reimbursements for consolidation costs and their allocation instead to dual-use and conversion initiatives. 40 Similarly, the rush to privatize America’s arsenal also is based on inadequate evidence and should be approached with great caution and better analysis.
On arms exports, the same dearth of solid research makes it impossible to evaluate the claims of companies that they must export in order to preserve capacity and ensure future capabilities. Because economically driven exports pose serious security and humanitarian problems as well as undermine an agenda of democratization, the United States, Russia, China, and the European Community should play a lead role in capping exports. They should follow the lead of the World Bank and International Monetary Fund in encouraging developing countries to spend on domestic rather than military investment and to forgo military production and convert existing capability where possible.
None of the major western weapons-producing countries have achieved conversion on anything near the scale anticipated when the Berlin Wall fell. Private sector firms have diversified quite substantially, but with very little help from their host governments. We conclude that it is not too late. From the success and failure of private-sector efforts and those modest public programs that have been put in place, important lessons can be learned. For firms, management commitment, willingness to change firm culture and resort to outside expertise, and access to bridging finance are crucial. Government programs, often at the regional rather than national level, have made the difference between bankruptcy and survival for many firms by providing technical assistance and finance to weather the two years or more it takes to shift to civilian markets. Worker readjustment, whether for members of the armed forces, civilian personnel, defense industry engineers, or blue-collar workers, could be improved dramatically in terms of counseling, providing worker transition centers, and enabling many to return to school or receive long-term retraining. 41 Base reuse, often blocked by incomplete withdrawal of the military or the presence of environmental contamination, could be facilitated by expedited property turnover and effective cleanup. 42
The size and shape of the defense industry are pressing issues for both Americans and the international community as we approach the 21st century. It is an agenda that will not go away, despite the inattention to date. The West could end up with a small set of very large, very powerful, and not very competitive defense firms, favoring the maintenance of Cold War thinking and technologies. If these remain “national champions,” without cooperating internationally, elimination of excess capacity will become just that much more difficult. The industry may rely increasingly on exports to problematic nations and worse, on weapons technology transfer, exacerbating arms proliferation and setting off another arms race, ironically among allies.
Or we could be moving into a world with a few large, specialized transnational defense corporations with considerably greater muscle in the world arms market. American orders would comprise a smaller share of the sales of any one of these giants, with negative implications for American security and access. Nevertheless, the United States probably will continue to fund most of the world’s leading-edge R&D, even as its ability to control diffusion of sophisticated weapons wanes.
The preferable alternative, in our view, is a move toward an integrated military-civilian sector, with more firms competing to serve the military and fewer of them dependent on defense contracts. Because such a sector also might be more international in scope, it must be accompanied by a military industrial base policy and arms export control regime coordinated among allied nations. Such industry integration and governmental cooperation would lessen supply-side resistance to an appropriate military procurement strategy. It would enable defense dollars, which are likely to shrink in number, to be spent optimally on defending citizens in a very new security world. With lively and diverse civilian markets, firms might feel less compelled to export, making the world a safer place. Reflecting on Walker’s account of defense industrial politics, we conclude that leadership for such a strategy is most likely to come from the American president, the Pentagon, and the armed forces. We recommend that President Clinton and his successors vigorously pursue this mix of policies.
Endnotes
Note 1: William Miller, “After Desert Storm: What Next for Defense?” Industry Week 24 (July 1, 1991): 48–53; Eric Schine, “Defenseless Against Cutbacks,” Business Week, January 14, 1991, p. 69; Anthony Velocci, “Ill-Defined U.S. Defense Priorities Making Industry a ‘Gambler’s Paradise,’” Aviation Week & Space Technology, June 17, 1991, pp. 141–42. Back.
Note 2: For civilian-military integration, see Jacques Gansler, Defense Conversion: Transforming the Arsenal of Democracy (Cambridge, Mass: The MIT Press, 1995). John Alic et al., Beyond Spin-off: Military and Commercial Technologies in a Changing World (Cambridge, Mass.: Harvard Business School Press, 1992); David Mowery and Nathan Rosenberg, Technology and the Pursuit of Economic Growth (Cambridge: Cambridge University Press, 1989). Back.
Note 3: Gregory Bischak, ed., Towards a Peace Economy in the United States: Essays on Military Industry, Disarmament and Economic Conversion (New York: St. Martin’s Press, 1991); Lloyd Dumas and Marek Thee, eds., Making Peace Possible: The Promise of Economic Conversion (Oxford: Pergamon Press, 1989); Seymour Melman, The Demilitarized Society, Disarmament & Conversion (Montreal: Harvest House, 1988). Back.
Note 4: William Cohen, Report of the Quadrennial Defense Review (Washington, D.C.: Department of Defense, May 1997); National Defense Panel, Transforming Defense: National Security in the 21st Century (Washington, D.C.: Department of Defense, December 1997). Back.
Note 5: Robert Coen and Bert Hickman, “Macroeconomic Impacts of Disarmament and the Peace Dividend in the U.S. Economy,” in Nils Gleditsch et al., eds., The Peace Dividend (Amsterdam: Elsevier, 1996) pp. 27–61. Back.
Note 6: Boston Review (February 1992): 5–9; Randall Forsberg, “Cooperative Security: Reconciling the Competing Paradigms of Non-offensive Defense and Collective Security in a Global Approach to Post-Cold War Security Needs,” Paper presented at the 89th Annual Convention of the American Political Science Association, Washington, D.C., September, 1993. Back.
Note 7: This book is not about how much or what kind of defense we need. These are topics well researched and hotly debated by other scholars and policy analysts. The determination of actual spending levels and their distribution among weapons systems, across the armed services, and among research, equipment, maintenance, and personnel bids is the work of individuals and agencies within an elaborate system of foreign policymaking, military strategizing, DoD civilian oversight, presidential priority setting and budgeting, and congressional scrutiny. Back.
Note 8: Werner Voss and Michael Brzoska, Eurofighter 2000: Consequences and Alternatives (Bonn: Bonn International Center for Conversion, 1996). Back.
Note 9: See, for instance, Richard K. Betts, Military Readiness: Concepts, Choices, Consequences (Washington, D.C.: Brookings Institution, 1995). Back.
Note 10: John Steinbruner, “Reluctant Strategic Realignment: The Need for a New View of National Security,” Brookings Review 13, no. 1 (1997): 4–9. Back.
Note 11: Cohen, Report of the Quadrennial Defense Review. Back.
Note 12: National Defense Panel, Transforming Defense. Back.
Note 13: Forsberg, “Defense Cuts and Cooperative Security”; Kaufmann and Steinbruner, Decisions for Defense; Janne Nolan, “The Imperatives for Cooperation,” in Janne E. Nolan, ed., Global Engagement: Cooperation and Security in the 21st Century (Washington, D.C.: Brookings Institution, 1994). Back.
Note 14: National Defense Panel, Transforming Defense. Back.
Note 15: Gregory Bischak, “Cooperative Security, Disarmament, and the Construction of International Peacekeeping Institutions,” in Kevin Cassidy and Gregory Bischak, eds., Real Security: Converting the Defense Economy and Building Peace (Albany: State University of New York Press, 1993) pp. 11–40. Back.
Note 16: Kaufmann and Steinbruner, Decisions for Defense; Forsberg, “Defense Cuts and Cooperative Security.” Back.
Note 17: On dual-use incentives, see Jacques Gansler, Defense Conversion: Transforming the Arsenal of Democracy (Cambridge, Mass.: MIT Press, 1995); William J. Perry, “Three Barriers to Major Defense Acquisition Reform,” Defense Issues, no. 65, p. 1 (1993); William J. Perry, “Specifications & Standards—A New Way of Doing Business”; Memorandum for Secretaries of the Military Departments, Chairman of the Joint Chiefs of Staff, Undersecretaries of Defense, June 29, 1994; William Rogerson, “Economic Incentives and the Defense Procurement Process,” Journal of Economic Perspectives 8, no. 4 (1994): 65–90; on diversification and integration, see: Michael Oden, Gregory Bischak, and Christine Evans-Klock, The Technology Reinvestment Project: The Limits of Dual-Use Technology Policy (New Brunswick, N.J.: Rutgers University, Project on Regional and Industrial Economics, 1995). Back.
Note 18: Defense Science Board Task Force, Antitrust Aspects of Defense Industry Consolidation (Washington, D.C.: Office of the Undersecretary of Defense for Acquisition and Technology, 1994); William Hartung, And Weapons for All (New York: HarperCollins, 1994); Ann Markusen, “The Post–Cold War Persistence of Defense Specialized Firms,” in Gerald Susman, ed., Post-War Progress in Dual-Use Technologies, forthcoming; White House, Office of the Press Secretary, “Conventional Arms Transfer Policy” and “Criteria for Decision Making on U.S. Arms Exports,” Fact Sheets, February 17, 1995. Back.
Note 19: John Dowdy, “Winners and Losers in the Arms Industry Downturn,” Foreign Policy (Summer 1997): 88–101. Kenneth Flamm, “U.S. Defense Industry Consolidation in the 1990s.” In Gerald I. Susman and Sean O’Keefe, eds., The Defense Industry in the Post–Cold War Era: Corporate Strategies and Public Policy Perspectives (Oxford: Elsevier Science) pp. 45–69; William Kovacic and Dennis Smallwood, “Competition Policy, Rivalries, and Defense Industry Consolidation,” Journal of Economic Perspectives 8, no. 4 (1994): 91–110; Ann Markusen, “The Economics of Defense Industry Mergers and Divestiture,” Economic Affairs 17, no. 4 (1997): 28–32; Office of the Secretary of Defense, Defense Science Board’s Task Force on Vertical Integration and Supplier Decisions (Washington, D.C.: Department of Defense, May 1997); Aaron Zitner, “Mergers Could Endanger Defense,” Boston Globe, December 23, 1996, p. A1. Back.
Note 20: Mary Ellen Kelley and Todd Watkins, “The Myth of the Specialized Military Contractor,” Journal of Economic Perspectives 98, no. 3 (April 1995): 52–58. Back.
Note 21: Richard Minnich, “Defense Downsizing and Economic Conversion: An Industry Perspective,” in Ethan Kapstein, ed., Downsizing Defense, pp. 111–28 (Washington, D.C.: Congressional Quarterly, 1993); Murray Weidenbaum, Small Wars, Big Defense: Paying for the Military after the Cold War (New York: Oxford University Press, 1992). Back.
Note 22: Ann Markusen and Joel Yudkin, Dismantling the Cold War Economy (New York: Basic Books, 1992). Back.
Note 23: Kenneth Mayer, The Political Economy of Defense Contracting (New Haven, Conn.: Yale University Press, 1991). Back.
Note 24: Gordon Adams, The Politics of Defense Contracting: The Iron Triangle (New Brunswick, N.J.: Transaction Books, 1982). Back.
Note 25: Coen and Hickman, “Macroeconomic Impacts of Disarmament.” Back.
Note 26: Erik Pages, Responding to Defense Dependence (Westport, Conn.: Praeger, 1996). Back.
Note 27: William B. Burnett and Frederic M. Scherer, “The Weapons Industry.” In Walter Adams, ed., The Structure of American Industry, pp. 289–317 (New York: Macmillan, 1990); Todd Sandler and Keith Hartley, The Economics of Defense (Cambridge: Cambridge University Press, 1995). Back.
Note 28: James Kurth, “The Follow-on Imperative in American Weapons Procurement, 1960–1990, in Jurgen Brauer and Manas Chatterji, eds., Economic Issues of Disarmament, pp. 304–21 (New York: Macmillan, 1993). Back.
Note 29: Business Executives for National Security, The Revolution in Military Business Affairs (Washington, D.C.: BENS, October 1997). Back.
Note 30: Jeffrey Drezner et al., Maintaining Future Military Aircraft Design Capability (Santa Monica: RAND Corporation, RAND/R-41990AF, 1992); TASC, Bomber Industrial Capabilities Study (Alexandria, Va: TASC, June 1995); U.S. Department of Commerce, Bureau of Export Administration, National Security Assessment of the Domestic and Foreign Contractor Base: A Study of Three U.S. Navy Systems (Washington, D.C.: Department of Commerce, March 1992); U.S. Department of Defense, Industrial Assessment for Torpedoes (Washington, D.C.: Undersecretary of Defense, Acquisition and Technology, DoD, August 1995). Back.
Note 31: William Kovacic, “Merger Policy in a Declining Defense Industry,” Antitrust Bulletin 36 (1991): 544–53; Kovacic and Smallwood, “Competition Policy.” Back.
Note 32: Markusen, “Economics of Defense Industry Mergers.” Back.
Note 33: Randall Forsberg, ed., The Arms Production Dilemma (Cambridge, Mass.: The MIT Press, 1994); Kenneth Mayer, “Combat Aircraft Production in the United States 1950–2000: Maintaining Industry Capability in an Era of Shrinking Budgets,” Defense Analysis 9, no. 2 (1993): 159–69. Back.
Note 34: Hartung, And Weapons for All; William Hartung, Welfare for Weapons Dealers: The Hidden Costs of the Arms Trade (New York: World Policy Institute, June 1996). Back.
Note 35: White House, Office of the Press Secretary, “Conventional Arms Transfer Policy” and “Criteria for Decision Making.” Back.
Note 36: Jeffrey Boutwell, Michale Klare, and Laura Reed, eds., Lethal Commerce: The Global Trade in Small Arms and Light Weapons (Cambridge, Mass.: Committee on International Security Studies, American Academy of Arts and Sciences, 1995); Natalie Goldring, “Toward Restraint: Controlling the International Arms Trade,” Harvard International Review 17, no. 1 (1994): 34–37, 78–79; William Keller, Arm in Arm: The Political Economy of the Global Arms Trade (New York: Basic Books, 1995); Edward Laurance, The International Arms Trade (New York: Lexington Books, 1992); Kevin O’Prey, The Arms Export Challenge: Cooperative Approaches to Export Management and Defense Conversion (Washington, D.C.: Brookings Institution, 1995). Back.
Note 37: T. H. Moran, “Foreign Acquisition of Critical U.S. Industries: Where Should the United States Draw the Lines?” Washington Quarterly (Spring 1993): 61–74; Defense Forecasts, Inc., Foreign Investment in the U.S. Defense Industrial Base: A Sound National Strategy for America’s Future (Washington, D.C.: Department of Defense, May 1992). Back.
Note 38: Michael Brzoska and Peter Lock, Restructuring of Arms Production in Western Europe (Oxford: Oxford University Press, 1992); Jane Davis Drown, Clifford Drown, and Kelly Campbell, eds., A Single European Arms Industry? (London: Brassey’s, 1990). Back.
Note 39: Ann Markusen, “Why We Lost the Peace Dividend,” The American Prospect (July/August 1997): 86–95. Back.
Note 40: U.S. General Accounting Office, Defense Downsizing: Selective Contractors Business Unit Reactions, GAO/NSIAD-95-144 (Washington, D.C.: Government Printing Office, May 1995). Back.
Note 41: Laura Powers and Ann Markusen, A First Transition? Lessons from Defense Worker Adjustment in the 1990s (Washington, D.C.: Economic Policy Institute, 1999). Back.
Note 42: Catherine Hill, The Political Economy of Military Base Redevelopment: An Evaluation of Four Converted Naval Bases (Ph.D. Dissertation, Rutgers University, 1998). Back.
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