America’s Peace Dividend, by Ann Markusen (ed.)

 

Introduction: A Retrospective On The 1990s, The Challenges Ahead

Ann Markusen

 

In the 1990s, most countries of the world were able to revamp their military policies and lower military spending in response to the end of the Cold War. Worldwide military expenditures fell by 40% in real terms over the coarse of the decade. The United States, a chief protagonist, was no exception; the defense budget fell more than 30%, and procurement spending fell by more than 60%. The Pentagon, in a series of reviews, identified new priorities for equipping and deploying our armed forces. The nation’s leaders grappled with re-formulating our role in the world and our posture towards everything from NATO membership to the arms trade

This set of essays and responses was commissioned by and presented to the Council on Foreign Relations’ Study Group on the Arms Trade and the Transnationalization of the Defense Industry in June 2000. With elections and a new presidency on the horizon, it seemed a good time to take stock of the past decade with an eye towards policy choices for the future.

In the first paper, Council on Foreign Relations Studies Director Lawrence Korb traces military policy changes through the three post-Cold War military reviews: the Base Force review of 1990, the Bottom Up review of 1993 and the Quadrennial Defense Review of 1997. He makes a strong case for the significance of Joint Chiefs of Staff Chairman Colin Powell’s vision of a threat and capability-shaped force structure with the ability to counter rogue state aggression in two theatres at one time, with or without allies. He shows that although President Clinton and first Secretary of Defense Les Aspin attempted a wholesale review of American defense policy, the result was a close endorsement of the Bush/Powell strategy. As a result, by the late 1990s the US possessed a somewhat shrunken version of the Reagan era Cold War force; with the budget shares of the three major services unchanged and spending levels over 90% of the Cold War average. He suggests that this is untenable as both a military and budget strategy, and outlines the elements of a more cost-effective defense policy.

In his response to the Korb paper, Charles Knight of the Commonwealth Institute emphasizes that the commitment to a military force suitable for large scale confrontation with a peer has consumed a large chunk of the peace dividend. The current American military posture is more ambitious than that of the Cold War, and is especially inappropriate when the major involvements of the US entail peacekeeping. He suggests that American forces remain untrained for the rigors of expeditionary roles in Southeast Asia and Kosovo. Knight is pessimistic that changes in the Congress or the Presidency will fundamentally alter this course.

The Rand Corporation’s David Mosher focuses his comments on the Korb paper to the mismatch between the Quadrennial Defense Review’s ambitions, and American budgets. He believes the "procurement holiday" is over, and that procurement would need to rise to $90 billion a year from current levels of $60 billion to fully fund the policy. He explores the Federal budgetary competition between proposed tax cuts, increases in the domestic agenda and debt repayment, and speculates on how these would play out under a Bush or a Gore presidency. Mosher suggests that there are still savings to be had on the nuclear front, but that missile defense will continue to place heavy burdens on the budget.

SPC International Corporation’s Dov Zakheim takes issue with the Korb paper and argues that the post-Cold War defense strategy was debated and compromised upon even before the Base Force review. He documents the military reluctance to take on peacekeeping and points out the tensions between the Department of State and the Department of Defense on American foreign policy. Zakheim argues that it is imperative to restructure the base force by embracing the so-called "revolution in military affairs", cutting purchases of cold war systems and underwriting research and development of newer, smarter weapons.

The second commissioned paper, by David Gold of Rutgers University, asks whether the US could have done better in delivering a peace dividend. He concludes that some portion of the defense cuts protected civilian public sector programs, some of which, education, transportation and science, constitute investments which will yield benefits in the future. The remainder was dedicated to deficit reduction, argued by some to have stimulated the economy. Gold, however, points out that the links between deficit reduction, a reduction in interest rates and hikes in private investment spending are unproven. He argues that the absence of any consensus on the true economic impact of budget deficits undercut the case for alternative uses of the peace dividend. Had we devoted the dividend to investments in technology, physical capital, human capital and poverty reduction, he suggests, the impact would have had greater staying power.

In her response to the Gold paper, Cindy Williams of Massachusetts Institute of Technology suggests that its not quite so easy to determine where the peace dividend was spent. She points out other simultaneous macro-economic trends: rising tax revenues, low oil and commodity prices, a continuing high tech revolution, and a stock market boom, all of which contributed to budget pressures and opportunities. Public sector investment is a hot political topic, she asserts, most often resolved politically rather than analytically. She concludes by speculating how these issues might or might not enter into an election debate.

University of Texas economist Michael Oden expands upon the challenge to the contention that defense cuts provoked private sector investment by unpacking the logic of the connection between deficits and interest rates. By the end of the decade, he reminds us, the government budget is in surplus but the trade deficit has worsened; he suggests that defense cuts could have contributed to this, especially by producing sluggish growth in the early 1990s. He contends that the economy would have done better with fewer cuts and greater civilian investment. Oden also speculates on the impact of defense cuts on pressures for health care and social security entitlements.
In a third commissioned paper, Oden, Rutgers University’s Laura Wolf-Powers and Council Senior Fellow Ann Markusen assess the post-Cold War defense conversion process. Reviewing a quite dramatic defense restructuring process, with deep cuts and large defense company mergers, they conclude that the process has not produced a research and industrial base equal to the challenges ahead. Nor were many of the technological capabilities locked up in defense firms shepherded into commercial markets, in large part because civil/military integration within firms was discouraged, while "pure play" defense mergers and arms exports were subsidized. Furthermore, considerable human talent was squandered through abrupt layoffs without adequate worker displacement or retraining assistance. They make the case for continued Department of Defense and Department of Labor intervention in the management of further elimination of military bases and defense firm cutbacks.

In his comments, SAIC Corporation’s David Berteau points out the difficulty of linking outcomes to policy on terrain of this scale. Much of what occurred over the decade, he muses, was based on anecdotal evidence and beliefs, rather than research. Having been in the Pentagon for much of the early 1990s, he documents the whip-sawing of policy in the period, which he sees contributing to the confusion. Although strong anti-competitive forces are at work in the industry, he notes that they had less impact on the economy than was predicted in the early 1990s. And yet, he argues, there are unanticipated consequences; for instance, the atrophy of defense technical fields.

Owen Herrnstadt of the International Association of Machinists and Aerospace Workers argues that there was no post-Cold War conversion policy for workers and communities, despite defense industrial job loss of 40% between 1987 and 1996. Nor was there much attention to the fate of smaller firms and subcontractors, whose ranks have been drastically reduced in the past few years. Both groups’ adjustment problems took a back-seat policy role in a policy pre-occupied with consolidation and restructuring of the largest firms. Job loss was in fact relatively greater than the loss in defense sales, chiefly because the largest contractors have been engaging in relocation, joint ventures and export agreements with generous offsets, all of which favor work in non-union regions and offshore. The absence of a policy continues to fuel job insecurity among defense workers.

The General Accounting Office’s Catherine Schinasi applauds the evidence on subtier contractors in the Oden, Wolf-Powers and Markusen paper. She underscores the conclusion that more effective conversion policy could have produced a more flexible, diversified industry with greater civil/military integration. She adds insight into the problems that second and third-tier contractors face, and makes the case for more careful study of and guidance to this sector in Pentagon procurement practices. Schinasi makes a number of suggestions for reshaping contracts for these subtier producers: establishing reasonable development schedules and fixed prices, adding technology base funding, and encouraging new entrants.

In the fourth commissioned paper, the World Policy Institute’s William Hartung analyzes three seminal events that "radically changed the dynamics of the global arms trade:" the break-up of the Soviet Union, the Persian Gulf war and the United Nations’ intervention in Somalia. The first resulted in a flood of surplus weapons hitting the market while COCOM, the most comprehensive export control mechanism for dealing with dual use technologies, was eliminated, ushering in what Hartung calls "free market fundamentalism" in the arms trade as well as more generally. The Gulf war, while highlighting the dangers of Middle Eastern arms sales, jump-started a new round of subsidized competition among the NATO allies, with the US by far the most successful. The Somalian episode revealed the complexities of increasingly sophisticated light weapons in the hands of combatants in civil and regional wars. Hartung lays out the recent history of arms trade policy and ongoing challenges: regulating a free-for-all market in major conventional weapons, restricting dual use transfers, and controlling light weapons.

In her comments on the Hartung paper, University of Maryland’s Natalie Goldring notes that there have been a few new initiatives, such as General Butler’s proposal for abolition of nuclear weapons and efforts to destroy land mines and curtail the proliferation of small weapons. Goldring sees hope in efforts to improve transparency and in post-conflict demobilization efforts. She stresses the necessity to destroy surplus weapons, monitor the legal trade in small weapons, prohibit co-production of high tech light weapons, and reward post-conflict governments for cutting defense expenditures and investing in their economies.

In his response, Joel Johnson of the Aerospace Industries Association underscores that the world arms market has imploded since the end of the Cold War, from $50 billion a year to $30 billion. He points out that although subsidies for exports have increased in the US, direct military assistance has declined substantially, with only Israel and Egypt still major beneficiaries. US success in Middle Eastern weapons markets in the 1990s was a consequence of the fact that American weapons worked well in the Gulf war, he argues, and generally, the US sells little and carefully. Johnson points out that disciplining the arms trade is difficult. In a code of conduct situation, for instance, if allied nations agree on which countries, they don’t necessarily agree on which weapons to deny them.

In a closing essay, the Carnegie Endowment’s Joseph Cirincione tackles the subject of American public opinion about national defense. Do Americans really care? Are these issues apt to matter in the 2000 elections and beyond, into a new administration? Cirincione suggests that candidates on the campaign trail, both for Congressional offices and the Presidency, are likely to emphasize the payoffs of defense spending for local economies. This tends to lock them in to commitments for current defense programs. In military policy, campaigns tend to push Presidential candidates to the right. In the past, challenger attacks–Kennedy’s "missile gap" and Reagan’s "window of vulnerability"–and specious attacks on Mondale and Dukakis for being "weak on defense," have been successful. While missile defense has been a Republican priority, Cirincione sees the Democrats successfully dodging it this time around. If the Democrats win the House, he sees a possible shift in defense policy and argues that historically, arms control has fared best with a Republican President and a Democratic House.

Overall, these essays and the responses to them depict a plateful of ongoing and important defense policy issues. They document the increasing salience of economic forces in shaping defense strategy, from procurement to arms sales to conversion and demobilization, and the waning of public interest and engagement. I offer them to you as a turn-of-the-century benchmark and welcome your comments in this on-line format.

 

America’s Peace Dividend