U.S. fails to adapt economy for peace States will be hurt by cuts, experts say

December 04, 1992|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- Two years after the end of the Cold War, the United States has still not begun to tackle the thorny problem of adapting its economy for peacetime.

This was the consensus that emerged yesterday at a conference of public policy experts and business leaders who met to discuss military conversion.

Sponsored by Business Executives for National Security, agreed that though a few small businesses were successfully converting, the government had by and large done little to recalibrate the economy or plan for the future.

"We are really facing a form of national paralysis," said keynote speaker Ann Markusen, a specialist on regional industrial problems at Rutgers University.

While some states would escape unscathed from the defense cuts taking place, many states would be hurt badly -- similar to how the Rust Belt states were hit by the decline in the automobile and steel industries.

According to one study, Maryland ranks among the top 10 states at risk in the current changes.

John Marlin, an economist and author of "Building a Peace Economy," estimated that nearly 400,000 jobs in Maryland are defense-related, which helped put Maryland in ninth place on an index of "defense dislocation." The study analyzed the percentage of the state's economy dependent on defense work and how much of the defense spending was planned to be cut.

Ms. Markusen said Congress and the White House were unwilling to slash defense spending as much as possible for fear of worsening unemployment. More than 9 million people are out of work, and defense cuts are expected to add 2.5 million by the end of the decade, she said.

A crisis could be averted, she said, if the government and private industry would work out a plan for conversion that included channeling money to local governments for job retraining and seed money for firms to develop civilian products.

Unlike World War II, which was a four-year blip in a largely peacetime economy, the Cold War dragged on for 40 years, helping to build large, sluggish companies that have known nothing but the uncompetitive business practices of defense procurement, said Gregory A. Bischak, executive director of the National Commission for Economic Conversion and $ Disarmament.

These big defense contractors, such as Bethesda-based Martin

Marietta Corp., often resist converting, Mr. Bischak said, preferring to count on Congress' unwillingness to cut the defense budget too much. In some cases, middle-level management and employees have tried to approach big contractors with conversion proposals, only to be rebuffed, he said.

This leaves small businesses as the best bet for conversion, said Erik Pages, who coordinates research into conversion for Business Executives for National Security, a non-partisan group of 1,500 business leaders.

Most companies, however, have a difficult time adapting. Used to manufacturing to the Pentagon's specifications, they now find they must anticipate what the customer will want. And instead of signing a multi-year fixed contract, they have to earn each sale.

But making the switch is important, Ms. Markusen said, because so many key sectors of the economy rely on defense spending. Defense, for example, subsidizes 80 percent of research and development in aerospace, 40 percent in electronics, 25 percent in rubber, 15 percent in machinery and 10 percent in steel.

Many professions also depend on military-related jobs. More than 50 percent of oceanographers, for example, work for the military, while defense spending supports two-thirds of aerospace engineers and one-third of physicists and electrical engineers.

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