The Perils of `Defense Conversion'

Article excerpt

FOR many on Capitol Hill, cutting defense spending has become a kind of superhero - able to finance pet projects in a single bound. But for congressmen with large defense contractors in their districts, defense cuts promise small peace dividends. In fact, the United States defense industry and the military could lose as many as 700,000 jobs during the next two years and double that number by 1996, according to recent estimates.

Hence the need for "defense conversion," concerted efforts to beat cold-war swords into plowshares for the new era. President-elect Clinton has rightly promised to make that a priority, but he must take great care lest defense conversion become the pork barrel of the 1990s.

The Bush administration has held that the government has no role to play in easing the impact of defense cuts. The market's magic is the best salve, it argues, citing America's speedy conversion and dramatic economic growth after World War II. Most wartime plants, however, had been switched from civilian production for the war; after the war most simply switched back. The postwar boom also eased the transition.

The post-Vietnam example of the 1970s, when defense contractors had grown far more dependent on government largesse, is more telling.

As defense outlays fell, several companies tried to branch out into civilian production, such as mass transit. Success was elusive, and the failures were impressive. Industry executives still recall Boeing Vertol's large cost overruns on its subway cars, or Grumman's unsuccessful venture into buses.

These large defense contractors had evolved into something very different from their civilian counterparts, which had to compete in the rough-and-tumble of an open marketplace. Defense suppliers have only one customer - the government - so they are not experienced with market research, mass distribution, or mass-producing low-cost items.

Instead, in response to comfortable cost-plus contracts and burdensome governmental bookkeeping requirements, many have developed unwieldy bureaucracies that favor uncertain new technologies. Without fundamental management changes, such firms are just as unlikely today to survive "conversion," be it government-directed or otherwise. …