OUT OF THE COLD: A CONCEPTUAL PLAN FOR ADJUSTMENT TO A POST COLD WAR SOCIETY

The end of the Cold War presents a unique opportunity to reinvent American society. In the wake of the Cold War both the problems faced and the resources available to address them are different from those associated with past postwar adjustments. Unfortunately, the adjustment to the end of the war will bring hardship to many. The hardship experienced by defense dependent firms, communities and individuals could delay or halt the transformation of American society. The study presents an introduction to the issue of post-Cold War defense economic adjustment. It defines a number of techniques for adjustment, presents new domestic considerations for defining American national security as well as identifying the dangers presented by regional conflicts and instability. Among the domestic threat are the cradle-tograve cycle of poverty, a crumbling national infrastructure, a failure to invest in productive capacity, a failing educational system, and various threats to the environment. Adjustment techniques need to both provide for post-Cold War national security and facilitate a smooth transition of resources once used for fighting the Cold War to other pressing national concerns with out causing an extended period of hardship to those once dependent on defense

(1) The first objective of the study is to create a foundation for the discussion of post-Cold War economic conversion. (2) The next objective is to address the obstacles that must be overcome to effectively use resources no longer employed by the military economy. (3) Another objective will then be to reveal some consequences of the necessary economic adjustment to a post-Cold War economy.
The study will also explain how the consequences will be intensified if this conversion effort is attempted at the wrong pace or without a very meticulous planning effort at every stage of the process. Also, the project will identify the different actors with a stake in this issue. Awareness of the other actors concerns with this issue could go a long way to finding a solution.
(4) Finally the study will present a coherent and easy to follow overview of the issue of economic conversion after the Cold War. This overview will act as a basis for a conceptual plan. The plan will include alternative conversion strategies 9 Chapter One: Foundation and new policy directions for the Nation and other defense dependent entities to follow. Possible solution will link the individual segments of downsizing defense industries, reemploying displaced workers, reusing abandoned military facilities, and economic adjustment for defense dependent communities to a new national economic policy. It could then provide a framework for future specific planning efforts.

Methodology
Data used in completing this study was predominantly collected from current literature. Key informant interviews were also conducted with government officials and others concerned with this issue. Base conversion, peace organization meetings, and public lectures were also attended.

Definition of Terms
Many terms are used when discussing post-Cold War economic adjustment.
These terms are often used interchangeably. Yet, each of these terms represents a different strategy for adjustment to the end of Cold War. The terms include such expressions as adjustment, diversification, spinoff, peace dividend, alternative use, dual-use, conversion and peace economy. The term adjustment will be used as the umbrella term in this research project. Peace dividend will refer to resources, no longer needed to wage war, which have become available for peaceful purposes. A 10 Chapter One: Foundation term "reverse conversion " 13 is also used to refer to the shift from civilian to military production that occurred in the 1980s.
Diversification strategies involve divesting the defense firm of some of its military divisions or acquiring or merging with additional civilian oriented businesses. It is usually a reaction to contract reductions that have already occurred. Diversification is a reactionary strategy and consequently requires little advanced planning. The purpose of this strategy is to lessen the effect of lost defense contracts. De~ense firms may also diversify within the defense industry to protect themselves from variations in the procurement of individual weapon systems.
Spinoff and diversification both assume that cuts in defense expenditure will be both short term and mild. Diversification does not involve alternative use of products or production techniques nor does it find alternative uses for the work force. It often leaves segments the existing work force inactive and is closely associated with layoffs of defense workers. Engineers and scientists are often preserved to prove to the Pentagon that the firm can compete when spending is resumed at the previous higher levels. 14 When associated with defense dependent communities, diversification refers to the attracting of civilian industries to broaden the production base of the community. Betty G. Lall and John Tepper Marlin provide a simple definition of diversification, "expansion of non-military production." 15 11 Chapter One: Foundation A spinoff strategy refers to the technologies originally developed for military applications that will now be applied to civilian uses. Spinoff strategy is used to ride out short term cuts in defense spending without significant changes to the firm ' s production techniques or work force. The same basic military product is sold to civilian customers. Unlike strict diversification strategies it does involve some alternative use. The purpose is to supplement defense-related contracts and not to replace them. It emphasizes internal development and works best with produc~ion technologies rather than specific products.
Closely associated with spinoff strategies is Dual-use doctrine , which gives precedence to technologies that serve both national security and commercial competitiveness. Champions of dual-use identify critical technologies, which include semiconductor manufacturing, high-performance computing, advanced materials, high-definition display, robotics, optoelectronics, biotechnology and advanced machine tools. 16 Critical technologies are those processes best suited to spinoff strategies.
Humanity ' s first concept of conversion linked with peace came from the great prophet Isaiah who lived in Jerusalem in the latter half of the eighth century B.C.. He writes about the message God gave him about Judah and Jerusalem, He will settle disputes among great nations. They will hammer their swords into plows and their spears into pruning knives. Nations will never again go to war, never prepare for battle again.
He then adds, "that a crucial criterion is that this be accomplished with. minimal dislocation of workers and communities. " 25 Yudk:en' s definition extends conversion to a component of a complete change in national economic policy including environmental sustainability and social well-being. His is the widest of definitions, raising successful conversion effort to a realization of social change.
The most detailed and process oriented definition of conversion comes from the National Commission for Economic Conversion and Disarmament, Economic Conversion is the political, economic and technical process for assuring an orderly transformation of labor, machinery and other economic resources now being used for military-oriented purposes to alternative civilian · uses. Economically, conversion requires planning for new markets, products and research and development for industrial facilities, laboratories, training institutions, military bases and other military contractors. Politically, conversion is a means for building constituencies for peace in America by providing economic options for those who derive their income and profits from military production. The formal institution of a conversion plan for military facilities requires a preplanning period in which managers and workers develop an inventory of workers' skills, capacities of factories and machines, and match them with the new requirements created by civil ian products and markets.
They go on to explain why economic conversion is necessary "to counter fears that peace means depression, and to help repair decay in U.S. industry and 15 Chapter One: Foundation infrastructure. " 26 They provide both an excellent definition and a clear statement of the necessity for economic conversion. The statement of need could be made more complete by the addition of social decay to the ills that economic conversion could help cure.
There are a variety of strategies for adjustment to the end of the Cold War.
They all involve some level of transformation from military production to civilian production. The crucial element is that the same workers and the same production facilities that were engaged in military production are somehow reemployed. Mere redirection of funds to civilian production without guarantees of job security will cause hardship and decay for those dependent on the military. Those dependent on the defense spending will have no choice but to resist conversion efforts. Conversion will become unworkable without the support or worse the opposition of such influential groups as labor unions, defense contractors, and local governments. World War II as a "reconversion, which entailed primarily civilian firms switching back to their original modes of activity." 27 Workers and firms involved in the buildup for World War II were simply reconverting to their former role of civilian production.
Dumas also observes, As the US involvement in World War II expanded, firms normally involved in civilian production began to switch to producing military equipment instead. All of the employees at such firms, from production and maintenance workers to engineers and managers, were accustomed to serving civilian commercial markets. That is what they had spent most of their working lives doing . .. They ' reconverted' . For them, military production was a temporary aberration from the norm of civilian commercial marketplace. 28 The response to the end of World ·war II was a switch back to a familiar form of production for workers in facilities laid out for civilian production. In contrast, many firms and workers involved in supplying armaments during the fifty years of Cold War have never experienced civilian production or marketing. 29 The conversion advocate 17 Chapter One: Foundation and planner must help the defense dependent workers, communities, and firms, involved in military production for generations, learn to function in a civilian economy for the first time in their experience.
Second, is the similarity of military and civilian production during the World War II period. In fact there was no sharp demarcation of civilian-oriented and military production. 3° Civilian industry converted directly from the production of goods for the civilian market such as automobile and shoes to the necessary means of war such as boots, tanks, and bombers. As the war ended the very same industries reconverted to shoes and automobiles. The bombers became the vehicles of civilian airlines.
Expectations of such uncomplicated conversions are no longer realistic due to the complexity and advanced technical nature of the Cold War arsenal. Conversion is possible in the wake of the Cold War but it will require careful planning.
Third, is the difference in the world economy after World War II. After World War II the United States had a huge pent-up market for consumer goods backed by huge accumulated savings. 31 The situation created by a combination of nationwide rationing and both diverting production away from civilian needs and increasing production to meet the needs of War. The production for civilian use of automobiles, aircraft, houses, and even whiskey was completely halted. Production of virtually every other consumer good was curtailed by a shortage of labor and critical materials allotment. Increased Demand resulted from scarcity of consumer goods and the increased savings resulted from the wages of full employment with little to purchase. The present post-Cold War conversion effort is set apart from earlier efforts by the fact that no actual war occurred. In the wake of the Cold War the worlds industrial production capacity remains intact consequently American defense industries no longer 19 Chapter One: Foundation needed to produce military products are thrust into a civilian market where strong competition exists. Pent-up demand and savings that existed after World War II are not present after the end of the Cold War. Unfortunately for those involved in "fighting" the Cold War they are set adrift in a world where the countries that did not divert resources to fight the Cold War filled their own needs and the needs of our country left unfulfilled by our own industries. American industries that could have designed, produced and marketed consumer electronics were instead diverted to producing advanced electronics for the Cold War. Instead the Japanese and other foreign competitors filled this market. Firms no longer needed for Cold War advanced electronics production will find it difficult to break into this market years after their foreign competitors.
The market will not solve the adjustment problem unaided by a well planned and executed conversion strategy. Advanced planning for the end of World War II occurred on both the governmental and enterprise level simply because the war was expected to end eventually. The need for planning was clear as the war was seen as a temporary situation. The Cold War was perceived as being of indefinite duration. Few could have predicted the sudden end of the Cold War. With no end to the Cold War in sight there was no corresponding incentive to plan for its end. When the end came immediately apparent was the lack of reaction from the American Public. There were no ticker tape parades or dancing in the streets, nor a negative reaction to the war's atrocities -few if any were widely perceived.

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Chapter Two

Post-Cold War National Security
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Converting Foreign Policy
The threat of communism from the Soviet Union no longer supplies the ideological glue for American security policy. As a first step to conversion in the wake of the Cold War, America needs to conduct a reexamination of its role in world politics. America must alter its basic security policy strategy to avoid a mismatch between strategic goals and available resources. A reduction of resources devoted to security policy reflected in a curtailed defense budget will require a reining in of Cold War strategic goals in the form of more restrained security policy objectives. Robin Ranger, former Jennings Randolph fellow at the U.S . Institute of Peace, observes that "The defense strategies and forces that won the war must be adapted to the new international security system created by victory, as well as to reduced budgets. " 33 Lasting and effective cuts in the defense budget that will simultaneously continue to bolster national security are required to make economic conversion from 21 Chapter Two: Post-Cold War National Security the defense economy to a peace economy after the Cold War possible. A lack of defense budget cuts or ineffective cuts will diminish or destroy any sustained conversion effort. Should the Military Industrial Complex be unable to maintain national security with reduced defense spending the initial military budget cuts following the end of the Cold War will be reduced or eliminated. Conversion will be meager or become impossible due to the abatement or elimination of excess material or intellectual resources should the defense budget return to Cold War levels. Excess resources liberated by cuts in the defense budgets are the essential ingredient for conversion. Without excess resources conversion is simply made impossible. America' s foreign policy goals must be reevaluated in the post-Cold War era of defense budget cuts to avoid a means-ends gap that will result in such a breech of national security.

Peace Dividend
Before American security policy can be examined such crucial concepts as the meaning of national security threats and peace dividends must be established.
Framed within these concepts are varying notions of national security and peace economy. Excess resources liberated by the arrival of peace are commonly labeled as the peace dividend. A peace dividend must exist within an economy that was previously based on warfare but has now ceased to fi ght the war. If the United

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Chapter Two: Post-Cold War National Security States has truly stopped fighting the Cold War, conversion advocates should be able to find a peace dividend among those resources no longer required for fighting it.
The peace dividend can be seen in narrow financial terms as the material resources no longer needed to prepare for or engage in a war due to an absence of hostilities and a period of public security. Given the enormity of the Cold War military budget and employment, it is not surprising that there are great hopes for a substantial post-Cold War peace dividend.
It is the likely that both the form and destination of the post-Cold War peace dividend will be surprising to many_ It is commonly felt that spending a dollar less on defense will free up a dollar for "social programs. " 34 Although, social programs are one option for dollars saved by reduced defense spending, social programs will have competition from other policy options including deficit reduction and tax reductions. The number of dollars actually available for any peace dividend policy option is also in question due to the efforts of the Pentagon and a variety lobbyists to preserve the military budget. Nancy Ettlinger writes about the true nature of the peace dividend, Irrespective of what we may want to happen, what unquestionably remains after the Cold War is not dollars to be spent on wanting programs, but talent and expertise -a human resource base -that has been secluded from civilian life and commercial enterprise. This is the real peace dividend, potentially. 35 Jeff Faux president of the Economic Policy Institute states the unlikelihood that any funds will be spent on social programs even more emphatically,

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Chapter Two: Post-Cold War National Security Even if the Congress forced the Pentagon to absorb all the cuts needed to meet the agreed-on ceilings in 1994 and 1995, the result would not provide an additional nickel for long-neglected domestic investments. 36 He credits the budget deficit for negating any possible shift of dollars (or nickels) from military budgets to domestic investments.
A more broadly conceived peace dividend offers great possibilities for changing the texture of American society. The change of texture will result from reducing inequalities, shifting national objectives, changing the moral tone -as well as redirecting the flows of governmental spending. 37 The size of the dividend depends on the amount of resources actually liberated by changes in Americas security policy and on the potential uses for the dividend. Politically popular alternative uses for such liberated resources will increase the amount of peace dividends eventually made available. 38 In many ways economic conversion is the creation of a peace dividend. Without economic conversion strategies liberated resources would linger uselessly no longer needed for warfare but unused in the civilian economy much like the newly unemployed defense worker, or unneeded subcontractor, who now cannot find a place in the civilian economy. Alternative use planning can provide concrete methods for developing such politically popular uses as infrastructural revamping and social development.
Economic conversion planning must also alleviate to the greatest extent possible such politically unpopular consequences of a drop in military spending as 24 Chapter Two: Post-Cold War National Security unemployment and dislocation of defense dependent workers. Lisa R. Peattie sites the Cambridge Peace Commission' s report on diversification planning has as its main goal: "through long range planning, to forestall business failures and job losses that would result from sudden reductions in military contracts flowing to Cambridge businesses. " 39 Here a peace organization is alleviating through long range planning such unpopular consequences of a military spending drop as business closing and job loss.
Such main goals would normally seem strange for a peace commission but, it became a main goal undoubtedly to maintain political support for the peace movement within the Cambridge area. Those in jeopardy of losing their livelihood will be hostile to a peace commission pursuing peace at the cost of their jobs or businesses.
Also, reuse of abandoned military bases have been especially successful in limiting negative effects and eventually becoming a greater asset to the community than the former base had been. Industrial and office parks are now located at more than 75 former bases nationally. 4° Communities will be more willing to give up their now unnecessary bases when informed of the success of base reuse over the last thirty years. should be taken when identifying national security threats not to identify a threat simply to advance personal ideologies. This must apply to both those who will benefit from continued military spending at or near Cold War levels and those who would like to engage in a national conversion to a peaGe economy.
With the collapse of the Soviet Union there is no military power that could successfully conduct a ground offensive against the United States. Also, no other military power can project its conventional forces through out the globe as adeptly as the United States. In sum, no other nation could hope to match our military capabilities for at least a decade. 42 Yet, the United States spending is more on its military than the next ten nations combined. Also, our military expenditure is four times larger than the next largest military budget. It is also worth noting that these nations are our friends or want to be our friends. 43 26 Chapter Two: Post-Cold War National Security

Lingering Threats
Perhaps peace will reign and there will be no more need for military spending at Cold War levels or perhaps chronic regional and ethnic conflicts will lead to limited yet widely dispersed nuclear exchanges or limited use of conventional weapons as in the Gulf War. There are still many threats on the domestic front should peace reign supreme. Conversion can play a role in addressing · these various threats to national security. Threats to national security will be split into two categories. The first are the "classic threats," those traditionally recognized as dangers to America. Next, are the "unconventional threats" those dangers recently identified as the realization of widespread domestic decay and its consequences settles into the consciousness of America. It is this new awareness that adds further impetus to the urgent need for economic conversion.

Classic Threats
Classic threats are defined here as those threats to national security that come from outside the country and pose a danger of physical invasion of the country or of its allies. The hazard may also be to an area the nation considers as strategically important such as Middle Eastern oil fields. Also within this category of dangers are regional conflicts that threaten to reestablish the use of nuclear weapons.
David M. Abshire sees two primary threats to national security in the post-Cold War world. The Western Allies will not be able to manage a safe transition in 27 Chapter Two: Post-Cold War National Security Eastern Europe and the former Soviet Union. Atlantic and Pacific democratic allies will develop conflicts among themselves. 44 He also goes on to suggest six contingent situations that he sees as challenges to United States security. The first two comprise the first primary threat to national security identified above. First is the challenge of a smooth transition of the once communist countries of Eastern Europe to democracy and capitalism. Next comes what he calls "the West's primary security concern" that is the challenge of disorder in the former Soviet Union. It includes both deterrence of nuclear weapons use and containment of nuclear weapons proliferation. Proliferation will also include the dispersion of Soviet scientists to countries seeking nuclear weapons-based power.
The other contingencies include a war in the Middle East, renewed conflict in Korea, a conflict in the Taiwan straits involving The People' s Republic of China, and finally a nuclear exchange between India and Pakistan. 45 All these contingencies for regional conflict have a potential for some level of nuclear exchange now or within the next ten years.
A single nuclear exchange would break a forty-eight-year taboo on their use and send a dangerous message to other entities involved in regional conflicts. The message would be especially clear if the use did not meet with an immediate and decisive response from the United States. Worst of all, beyond the obvious human and social cataclysm of any nuclear warfare, it could occur in countries barely able to provide for all its citizens in peacetime.

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Chapter Two: Post-Co ld W ar National Security Alan Tonelson reminds us however that as terrible as the consequences of regional conflicts may be, without the Soviet Union, "few international conflicts will directly threaten the nation' s territorial integrity, political independence or material welfare. " 46 There is also reason to question the likelihood that these regional conflicts will escalate to the point of warfare. South Korea, for instance, has twice the population and ten times the economy of North Korea and is most likely capable of dealing with their neighbor' s potential aggression. 47 Whereas North Korea does presently have twice the standing army of South Korea even including United States' troops but United States' F-16s are more than a match for the North' s ageing Migs. The United States presences in this area could even trigger a conflict that would have otherwise not occurred. In the wake of Desert Storm many other countries contemplating regional conflict may be hesitant to act for fear of America' s swift intervention. The obvious question is: Should America spend billions preparing for regional conflicts that will not directly threaten the country?
Military spending in preparation for potential regional conflicts is a particularly dubious allocation of funds when many domestic problems are glaringly obvious; domestic problems that a conversion strategy focused on infrastructural and social restructuring will address.
Many questions are left to be answered by United States policy makers, m the face of regional conflicts. Can the United States deter regional conflicts such as these and still have excess resources to engage in economic conversion? Should the 29 Chapter Two: Post-Cold War National Security United States take the responsibility for these regions? Can it afford not to intervene? How much aid should the former Soviet Unions receive from the United States?

Unconventional Threats
Many have identified different threats to national security than those that can be met by investing in an adequate military defense. Robert L. Borosage identifies post Cold War national security threats this way, "Now, as the fog of the Cold War lifts, the real security concerns of this country come into view -our economy, our environment, our education system. " 48 He sees America's real national security threats as coming from within. He is not alone. Mark Levinson writes, But perhaps our security is no longer to be measured by the size of the military budget. It may be that our country greatest weakness lies in the public realm -the shocking economic inequality, urban centers that resemble underdeveloped countries, rotting roads and bridges, second-rate education and training, shameful neglect of the young. 49 Again Levinson identifies quite graphically that the real threats to America's security are now coming from domestic social and infrastructural decay. Our failing educational system has left Americans behind the rest of the world in literacy. Nearly one in five American workers is functionally illiterate.
Between 1985 and 1992, one quarter of all students in high school failed to graduate. Every year two million Americans leave school without learning to read or write. so A poorly educated work force will be less able to participate in key 30 Chapter Two: Post-Cold War National Security cutting-edge industries and will lend to the further decline of our global competitiveness.
Our children not only suffer from poor education but also from poverty.
Almost a fourth of all American children under the age of six live beneath the official poverty line. This figure increases to about half for black children. The number of Americans that fell below the poverty level stood at 31 .5 million in 1992. 51 Poverty and failing education are further complicated by the highest rate of crime in the world. A black male child today is more likely to go to jail than to college. 52 America has certainly defended itself flawlessly from external threats. Other countries around the world are under siege from their neighbors or are tom apart by civil war. We have been spared these situations for over a century. The end of the Cold War gives America the opportunity to switch our focus from external threats to internal threats to our national security. Hopefully in the wake of the Cold War we will be as successful responding to domestic threats as we were answering external threats. This time the war on poverty, crime, drugs and illiteracy will take place without a Cold War to fight simultaneously. We must be careful not to be overrun by domestic decay while we seek to protect ourselves and our interests from foreign threats. Many problems now identified as the new security threats to the United States after the end of the Cold War have also been identified as results of the creation of the Cold War arsenal itself. Those critics of the Pentagon whom most often point out military spending as· a major drain on the civilian economy are known as the "depletionists." They believe that military spending has diverted vital capital, technical and human resources away from productive uses.

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Chapter Two: Post-Cold War National Securi ty Dumas explains that resources employed for military buildup do not contribute to the societal standard of living. He sees the economy as the part of society whose central function is to provide material well-being. ss By this definition only those activities that generate material standard of living have economic value. Production of consumer goods and services contribute directly to the material living standard. Producer goods and associated services also contribute but less directly as tools that add to future production capabilities of consumer goods. Mixed goods -consumer and producer goods combined -such as education and health care augment both present and future standard of living. 56 Production of consumer goods, producer goods and mixed production are contributive uses. Military production neither contributes to the supply of consumer of producer goods thus it is diverting needed resources away from the civilian economy and is a non-contributive use.
Military production may seem to be contributive because resources left idle which are then employed in military production will produce lower unemployment and a greater distribution of income. Nearly every other form of public expenditure creates more jobs, dollar for dollar, than military expenditure. 57  Military production also produces spinoff technologies like Teflon. The heavy emphasis on research and development in military production creates a national "brain drain" that retards civilian production. Spin-off products and technologies cannot compensate for this retardation. Long lead times of military products, and their secrecy, combined with the narrow specialization of defense products sharply limits spin-offs. 59 Most military research and development is than a diversion from the civilian economy. The civilian economy is deprived of such critical resources as engineers, scientists and capital as they are diverted to military production. Approximately 30% of the nation' s engineers and scientists have been engaged in military research and development for the last three decades. 60 Resources are being wasted on military production because they are not contributing to the material well being of society. The resources being wasted could be used instead on national infrastructure, education or various social programs.
They are the same needs now identified as national security threats.
America' s trade imbalance can also be partially attributed to the creation of the military economy. Defense dependent workers received income, producing demand, but produced items that cannot be purchased by the civilian public such as 34 Chapter Two: Post-Cold W ar National Security fighter jets or nuclear weapons. Resources diverted from the production of such consumer goods as automobiles, 35 millimeter cameras or consumer electronics left a void thus limiting supply. In a closed economic system inflation would result but international trade instead limited inflation and imported goods filled the void left by lack of domestic production. It is important to note that the Japan partially filled the consumer product demand and Germany the producer goods gap -both countries forbidden to participate in significant military buildup since the end of World War II.
The Reagan Administration buildup slashed investments in children, education and training, infrastructure, and in civilian research and development while simultaneously cutting taxes on the rich and doubling the military budget in peacetime. Robert L. Borosage, lists some results of the buildup, Children weren' t given a healthy start. Schools were inadequate. Untrained workers were condemned to bad jobs at bad wages. Laid-off defense workers were abandoned with no place to go. A crumbling infrastructure made our lives harder and our economy less competitive. 6 1 However, Nathan H. Mager provides an opposing view. He writes, During the Reagan administration, approximately a trillion dollars was allocated for defense over a four-year period, adding almost 6 percent to the gross national product, providing a direct major spending stimulant with a high multiplier effect, especially because of new technologies involved. These appropriations induced additional capital spending for production of high-technology weapons. They created a demand for a large variety of supplier goods, revived industries suffering from maturation, added life to communities becoming ghost towns, and provided for the blue-collar workers who otherwise would have been cyclically and technologically obsolescent. In spite of the hue and cry about mounting public debt, the defense spending of the 1980s was a major factor in the turnaround growth of the economy in 35 Chapter Two: Post-Cold War National Security the United States in 1982, 1983, and 1984. By osmosis, this cycle of high federal deficits, high interest rates, high value of the dollar (attracted by this profit opportunity), and high imports salvaged the economies of most of the Western World, both by stimulating exports abroad and by restraining U.S. competition. It also restrained inflationary pressures in the United States. 62 Economic collapse of most of the Western World could certainly be considered a threat to security. Mager sees the Reagan Administration military buildup as salvaging the ailing economies most of the Western World although partially by restraining U.S. competition. The buildup itself preserved national security in economic terms while also producing overwhelming military might.

Bottom up Review
Defense Secretary Les Aspin and the Pentagon have been conducting what was dubbed a "Bottom Up Review." It is a reevaluation of the dangers this country faces and the forces and actions needed to deal with those dangers. Its purpose was to define the strategy, force structure, modernization programs, industrial base, and infrastructure needed to meet new dangers and seize new opportunities of the post-Cold War world. The Bottom Up Review identifies ten "new dangers" that have emerged in the post-Cold War era: . . . collapse of order and reform in the former Soviet Union; threats to democratic and civil order in the developing world; a weak domestic economy; a lack of international competitiveness~ a lack of environmental security; proliferation of weapons of mass destruction from Moscow' s central control to the newly independent states or to terrorist abroad; proliferation of such weapons to other countries (like North Korea, Iran, and Iraq); statesponsored terrorism; ethnic, religious, and internal conflict, as in the former Yugoslavia; and large-scale aggression or intimidation, like Iraq' s invasion of Kuwait. 63 The Bottom-Up review identifies domestic decline, classic threats, and environmental security in the most comprehensive assessment of post-Cold War security risks. Yet, the Pentagon proposed to spend less than 1 percent of its $263 billion budget request on destruction of nuclear weapons in the former Soviet Union, to fund peacekeeping operations, to support economic conversion, and to counter proliferation. 64

Ideal State of National Security
In the light of these various threats to national security an ideal state of national security would be one that possesses domestic conditions of social, economic, political and ecological harmony. Ideal national security would include a foreign policy agenda that is neither based on, nor results in lasting conflicts between nations along ethnic, gender, or class lines. National security also ultimately depends on not promoting conflicts between humans and their global environment 65 (i.e. lowering environmental standards to promote reindustrialization). Such an ideal state of national security can serve as a final goal for conversion to a peace economy. A new national security policy will be needed to move the United States toward this ideal security state. It will not be easy to achieve and will not happen quickly. Real lasting changes of any kind seldom are quick or easy.

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Chapter Two: Post-Cold War National Security

United States Security Policy
Layne and Schwartz provide a concise interpretation of America's Cold War security policy. They have labeled it as a "double containment" policy. By integrating both Japan and Germany into a United States dominated anti-Soviet coalition involved in security and economic arrangements, the United States could both contain its former World War II enemies Japan and Germany and its Cold War enemy the Soviet Union. Double containment allowed the United States to reassure Japan's and Germany's neighbors in East Asia and Western Europe that there would be peace in their regions. The United States assumed responsibility for maintaining peace in these areas. Pacification of these areas was seen as key to creating and sustaining an open global economic system vital to American prosperity. 66 Not surprisingly, the current security policy is also commonly referred to as the "preponderance policy." Two questions arise for those planning for economic conversion. Seymour Melman puts it simply, If there has been a single defining feature of the United States policy during the Cold War, it has been the relentless effort to hold a position of military and economic dominance in the world . . . Being superior in both guns and butter has been part of the American self-image. 67 Can America afford to maintain this policy of dominating world economies, while reducing defense budgets and attempting to convert to a post-Cold War economy?
Can we still hope to have both guns and butter and have more of both than any other country in the world? The answer is "Yes" but our advantage will be quite a bit slimmer than in the past.

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Chapter Two: Post-Cold War National Security Abshire illustrates this security policy with his statements on the keys to shaping the new security environment after the Cold War. He adds, "and we do want to shape it!" The first key is cooperation and cohesion among the leaders of the three democratic blocs -the European Community, the United States, and Japan. He believes that in the absence of orchestration of the democratic blocs the world will return to the pre-World War I environment of fierce economic competition and destabilizing military relationships. 68 These comments again illustrate the United States' perceived need to dominate world politics to preserve its economic prosperity and material security in the Cold War period. Alarmingly, these comments are put forward as keys to the new security environment in the post-Cold War period. Reduced investment of material and intellectual resources in the military will represent insufficient "means" for an attempt to continue this "preponderance" policy. An attempt to continue this policy will establish precisely the type of "ends" that will eventually form a "meansends gap" depleting any peace dividend gained from the end of the Cold War and thus removing the possibility for conversion. Conversely, if a more modest and less extensive foreign policy agenda is not followed a hollow security policy will result.
Grand strategizing and a preponderance policy cannot be supported by declining amounts of troops, hardware and money.

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Chapter Two: Post-Cold War National Security

Defining the Role
Defining the role of the Country in the post-Cold War world and the role of the military within the Nation' s basic security policy strategy is especially significant to both maintaining national security and liberating resources for conversion.
Defining that role will be particularly difficult. Caroline Ziemke observes, The Clinton defense establishment faces a daunting task of redefining the role of military force in an entirely new peacetime strategic order and guiding the military services in tailoring their force structures, doctrines, and capabilities to fit it. 69 It has been observed that a change is needed in United States security policy but it is not happening quickly enough to respond to the pace of change in the global security environment. John D. Steinbruner observes that radical shifts in both technology and politics have "altered the problems of security so extensively that a fundamental redesign of United States' policy is obviously required." He continues, "That revision has not yet occurred and does not appear to be occurring at a rate that is responsive to the pace of events." 70 Layne and Schwartz go beyond Steinbruner' s observations in that they remark, It is commonly held that the Cold War' s end allows the United States to conduct a searching reexamination of its role in world politics. In fact, however, that has not happened and there is no reason to believe it will. 71 Layne and Schwartz see no reason to hope for the reexamination that must proceed any revision and redesign of United States security policy. The conversion advocate or planner, as a first step toward conversion, must demand that the reexamination and redesign· does occur without delay. Toward this goal the conversion advocate should search out policy makers that intend to reexamine America's role in world politics and propose solutions and define new roles that will liberate resources for conversion.

Toward Solutions
In the wake of the Cold War, America must refrain from the grand strategizing to preserve resources that can then be devoted to long ignored domestic needs. Within its new role the military must maintain a force that can live within its resource constraints, sustain a reasonable pace of modernization, while simultaneously keeping readiness at the highest possible level. 72 Smaller, lighter, and more flexible forces will be best able to fill this new role. They will require a smaller budget to operate but with greater impact on unconventional missions.
The key to preventing a means-ends gap is a security policy based on deterrence not on intervention into regional conflicts. Many potential areas of conflict have been clearly identified. Diplomatic steps taken now could prevent the need for expensive Desert Storm-like interventions in the future.
The choice not to intervene is not to be interpreted as a call to indifference to save money. America' s delayed entry into World War II (noted in Chapter One) indicates an indifference to the plight of the Holocaust victims. This past indifference cost millions of civilian lives. Today many lives are threatened in 41 Chapter Two: Post-Cold War National Security Yemen and Rwanda and in many other scattered regional conflicts throughout the globe. The cost of our past indifference should weigh heavily on our decision to intervene in these conflicts. A standard needs to be created to distinguish between political conflict and inhumane slaughter.
Strategies of prevention and deterrence are particularly important in dealing with the former Soviet military establishment. Eventually someone will take control over this "over-armed, underfed, and under-scrupled country." 73 If the new leadership is allowed to develop a hostile stance toward the United States a new Cold War could develop or worse a full scale nuclear exchange could take place.
Fortunately, it will take years for someone to establish firm control, solve their own domestic problems, and whip their forces into shape. The delay will give the United States the time needed to help shape the redevelopment of the former Soviet Union from totalitarian to democratic government and to solve our own domestic problems through economic conversion strategies.
A decision must be made as to the validity of external threats. They must be weighed against domestic threats such as poverty, crime, homelessness, crumbling infrastructure, loss of competitiveness, and a failing educational system. The severity of each of these threats should relate to the amount of resources devoted to addressing them. Again, a lack of military intervention into regional conflicts does not require a blindness to human suffering. America is able to engage in missions of humanitarian aid without those missions degenerating into "warlord-hunts" as happened in Somalia.

.1 Overview
Change is certain, progress is not. Shifting more of the nation' s resources from military to civilian uses should eventually make it easier for the United States to generate high-wage, high-skill employment. 74 Conversion is the process of making the shift of resources to civilian uses. It is a substantial challenge to make this shift as smooth and painless as possible in this time of sluggish global growth when even large civilian companies continue to layoff workers.
An aversion to planning and a simplistic reliance on the market economy to adjust to cuts in defense spending will prevent a rapid reemployment of both real and intellectual capital invested in the military economy. The Cold War economy has produced corporations, scientists, researchers, and workers unable or understandably reluctant to fit into a civilian economy. A weakened free market 44 Chapter Three: Challenges of Conversion to a Peaceful Post-Cold War Society civilian economy is less able to absorb the excess capacity that is cast off by the military economy.
Cuts in defense spending have already occurred and will continue to occur in the future . These cuts will cause changes both to the overall economy and more acutely to defense dependent regions. It is not assured that these changes will be for the better. This chapter will convey effects of reduced defense spending and challenges of economic conversion.

Significance of the Opportunity
The end of the Cold War presents an unprecedented opportunity to redistribute human and material resources occupied in fighting this war for nearly fifty years. The redistribution of these resources requires many different planning skills. Careful national and global economic development planning is quintessential for preventing the massive stagnation of the United States' and the world' s economies. State and local planners must become aware of the possible effects to their communities. Clever military planning is needed to maintaining an effective military that can react to any threat to the United State or its interests anywhere in the world. Many nonmilitary critical concerns that have been partially or completely ignored during the Cold War can now be addressed.
Planners could have resources never before available to address problems such as urban, environmental, societal and infrastructural decay, which have risen to the forefront of national attention. The newly liberated resources will come mostly 45 Chapter Three: Challenges of Conversion to a Peaceful Post-Cold War Society as intellectual, technological expertise and excess real property. Conspicuously less abundant will be new financial resources as the Cold War was paid for at the cost of accruing a significant national debt.
Significant cuts are not certain to continue due to regional conflicts and loss of jobs. Yet, cuts in the defense budget of 50 even up to 90 percent have been suggested. Many cuts are being made and far more are expected. President of the United States Bill Clinton in a speech to Westinghouse, Inc. employees explained that by 1997 defense spending will have been reduced by 40 percent from its 1985 peak. 75 He goes on to state that cutbacks in military spending . . . are essential in a world in which we need funds to be reinvested in the domestic economy, and in which the security threats we meet today, while very serious, are different and clearly less expensive than those we faced when the Soviet Union and the United States faced each other across the Berlin Wall with the barriers of the Cold War, and imminent prospect of nuclear war. 76 The Providence Sunday Journal November 28, 1993 quotes Bureau of Labor Statistics figures, According to the federal Bureau of Labor Statistics, the estimated $100 billion reductions in defense spending expected to take place nationwide from 1987 through 1997 is less than one-third of the way along. Only about $27 billion had been cut through 1992.
From these figures it can be inferred that some cuts have been made but startlingly, they will be eclipsed by the myriad of further cuts that are expected in the next few years.

46
Chapter Three: Challenges of Conve rsion to a Peaceful Post-Cold War Society Spending has fallen dramatically since it reached its peak during the Reagan buildup in 1985. The Pentagon's procurement budget is down from $127 billion (in 1993 dollars) in 1985 to $45 billion this year, and is likely to continue to decline by at least 5 percent a year. 77 Yudken and Markusen point out that the Pentagon' s spending on aircraft alone has fallen from $48 billion in 1985 to $16 billion in 1993 . 78 More startling, is the amount of hardship these partial cuts have already caused. The cuts are considered partial when compared to anticipated cuts.
There are many difficulties and many unfortunate consequence of reducing the defense budget particularly lacking effective conversion strategies on corporate, community, and national scales. A particularly severe consequence is that the economy will plunge into a deep depression that spreads rapidly over the rest of the world. This circumstance is unlikely but, for ·those living in heavily defense dependent communities it may seem to be happening to their world.
The localized nature of defense dependence render such macroeconomic cures for unemployment as tax cuts, increased government non-military spending, or increased money supply incomplete solutions because they spread their positive effects over the entire country.
Economic policies that average their stimulating effects across the nation cannot reach into specific effected areas deeply enough to prevent regional recession in the event of major military spending cuts. 79 Added to these macroeconomic solutions is the necessary factor of local economic conversion efforts. Fortunately there are many programs available to aid community and local 47 Chapter Three: Challenges of Conversion to a Peaceful Post-Cold WaI Society business in assessing planing and executing their own particular adjustment efforts which will likely include some conversion strategies.

Two Levels of Conversion
Conversion problems occur on two stratum -a macrolevel and a gradual cuts in defense spending that at its peak only accounted for 7 percent of GNP do not seem to be a cause for national concern.
In fact from a national perspective Lall and Marlin point toward the size and complexity of military contracting as a barrier to cutting the national defense budget, Military contracting is a massive business, with the Department of Defense buying goods and services from more than a quarter of a million firms each year for everything from aircraft carriers, to fuel, to "Pampers" for resale at base commissaries. 83 Beyond the obvious difficulties of resolving the specifics of the programs that will be cut, the time table, and the location of companies that will lose contracts, there is the further difficulty that these cuts will send repercussions through the entire economy. Few will dispute the local effect that loss of defense contracts and military 49 Defense contractors also operate in a non-competitive environment due to the "follow-on imperative" -a system of giving defense contractors turns in producing new weapon systems. The Pentagon uses this system of spreading around contracts to ensure the survival and vigor of the few defense contractors that supply most of their needs. 89 Consequently, a defense contractor that is next in line may receive a contract though it offers a more costly system than another company. The non-competitive environment has limited the defense contractors' development of management expertise in long-range financial planning. 90 In a commercial market there will be no guarantees of survival or vigor from the client. ·

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Chapter Three: Challenges of Conversion to a Peaceful Post-Cold War Society Although the expected cuts are at first startling when compared with the peak spending of the 1980s, and conversion to a civilian market seems a insurmountable task, now is not the time for defense contractors to panic. Murray Weidenbaum, in a speech delivered to the Western Economic Association on July I, 1991 reminds that "the bottom is not about to fall out of the military market, but a period of severe belt tightening has arrived. The defense industry has continued to steadily increase its capacity to produce weapons in spite of a 50 percent decrease in the procurement budget since 1985. 9 1 The defense industry now has a tremendous overcapacity.
Weidenbaum goes on to explain that the most likely outcome of belt tightening "is a substantial decline in the overall volume of defense business for the early 1990s, but with defense spending remaining high by historical standards. " 92 Defense contractors will survive but will be forced to downsize, diversify, increased lobbying efforts, expand foreign weapons markets and engage in mergers to solidify their product domestic markets. After a year, 44 percent were still out of work and those that did find work were working for 70 to 85 percent of their previous wages. Many workers were no longer covered by health insurance. 98 The same is true of Connecticut's Electric Boat workers many laid off from the defense industry will find their way into Connecticut's second leading industry tourism and be forced to take lower paying casino jobs. 99 Job loss is not limited to those directly involved in the defense industry. A ripple effect from prime contractor layoffs could sweep away several hundred thousand nondefense jobs. 100 Dumas explains one way this ripple effect of prime contractor layoffs will extend job loss beyond military firms, Not only would those workers laid off from their jobs in military industry suffer, but their loss of income would lead to a cutback in their consumer spending that would also generate further layoffs in industries supplying consumer goods. 101 The often overlooked smaller service firms and suppliers are also feeling cuts in the defense budget. Small service firms and suppliers, unlike prime contractors or communities, do not have high priced lobbyists or influential politicians to defend their interests. The Bureau of Labor Statistics estimates that about 286,000 service jobs and 139,000 retail and wholesale trade jobs will be lost in the next five years. Labor Department experts estimate that manufacturing will lose 594,000 jobs in the next five years. Also disappearing are jobs for semiskilled laborers. In 1987 the defense sector 55 These often overlooked workers do have an advantage over highly trained or those more closely aligned with defense production. Their skills are more easily transferred to the civilian marketplace. Landscaping firms for instance that lose maintenance contracts due to military base closing will preform the same service but for civilian customers. Wholesalers and retailers that provide disposable diapers for resale at commissaries to troops families will sell the very same product to civilians.
Unfortunately, the skills of those unemployed workers, engineers, and managers directly involved in defense production are difficult to apply to the civilian marketplace.
Those involved in research and development are also in for a difficult time of adjustment. Defense workers generally are highly skilled, older, and more highly paid. 103 The most difficult adjustment in the 1990s is for the large number of engineers that will be laid off. The Institute of Electrical and Electronics Engineers predicts that 55,000 defense industry engineers could lose their jobs by 1995. 104

Communities
The true severity of the problem becomes apparent when viewed from the perspective of defense dependent regions. Areas where the military industrial complex and military installations are concentrated will be exceptionally hard hit by a post-Cold War military build down. The Pentagon buys 59% of its arsenal from just ten states:

Conclusion
The many challenges of converting the defense economy to a peace economy need to be overcome in order to avoid a continuation of the many hardships that reductions in the defense spending are causing. Essential participants in the conversion process, including managers of defense firms ,laborer, and community leaders, will likely become reluctant or even hostile to conversion strategies should peace becomes synonymous with hardship. Peace should not mean unemployment and crumbling communities. Steps need to be taken at all levels to ease the transition for those negatively effected by the defense drawdown. Transition assistance should then be followed by the pursuit long term conversion strategies at both the macroeconomic and microeconomic levels. (2) Bridge strategies such as diversification and spinoff that will be the precursors to long term conversion strategies.
• Suggest long-term and far-reaching conversion strategies to enable firms, communities, and individuals to move toward a new set of national priorities chosen by American society.

Conceptual Plan for Adjustment
The conceptual plan for a post-Cold War society can be summarized into a forced take in order to survive will be necessarily self-serving. The adjustment concerns of other defense dependant entities will have to be secondary to their own needs. An example of this is the common situation of a large defense contractor laying off many workers to reduce overcapacity in response to reduced · procurement by the Pentagon. Such layoffs will preserve the firm's critical mass and thus ensure its own short-term survival but the needs of the employees and surrounding community are neglected. Employees also could pursue self-serving strategies such as demanding large defense firms to engage in conversion strategies that are not profitable in order to preserve their employment. Communities and defense dependent employees seek continued contracts for weapon systems that are no longer necessary to America's national security so that funds will continue to flow into their community and jobs will be preserved.
Fragments of Cold War policy inevitably will linger for a time along with accompanying painful adjustments and reactionary survival strategies such as layoffs and abandonment of facilities. This is to be expected as any truly significant change is accompanied by a painful, yet essential, period of transition. Adolescence is an example of this period of painful transition we are all familiar with during our own human development. The painful transition period is concluded when a goal is identified and then realized.

Chapter Four: Adjustment Strategies and New Directions
Conversion is not one of these reactionary survival strategies for the painful transition period. It is a means for identifying and realizing the final goal of peace and prosperity and putting a welcome end to the reactionary period. The danger is that the painful transition period will be allowed to linger on indefinitely. The longer defense dependent communities are allowed to experience unemployment, factories are abandoned and newly completed infrastructure is allowed to sit idle the more difficult it will become to reverse their decline.

Conversion Strategies
As stated earlier the overriding goal for conversion strategy should be to preserve national security in this time of many scattered regional conflicts while redirecting newly liberated resources toward pressing societal needs. The conceptual plan presented here will facilitate this overriding goal by presenting strategy options to be pursued by planners and economic conversion advocates. Five basic steps apply to any firm, community, or to a lesser degree individuals wanting to engage in defense conversion: (1) build a coalition, (2) take stock of entity's present condition, Sustained reductions in defense spending are crucial to continued successful conversion efforts. Without them resources will not be liberated to be used for conversion. Defense spending will not need to fill the role of employment program of federal aid to communities instead it will fill its intended purpose providing for national security. War levels would be like buying a state of the art alarm system for a house whose roof is falling in. 11 3 Nuclear powers such as China and Russia will require 10 years to organize and buildup a menacing threat to the United States. 114 We will certainly have a chance to engage in our own buildup if necessary. It follows that the United States need not maintain military spending at Cold War levels and may continue to cut the defense budget while still maintaining strong national security. •

American society should aid those displaced by the end of the Cold War.
Dislocated defense dependent firms, communities and workers are not the only groups suffering in today' s economy. The question then arises, "Why should defense dependent firms, communities and workers receive special treatment from the government?" Tremendous public effort and investment went into creating, building, training and educating the firms, communities and workers that help fight the Cold War. The Cold War is over but in its absence the products of America' s Cold War effort sit under used or idle. The plight of the defense worker was created by government policies, not by normal market forces. 115 America should take responsibility for aiding the transition of defense dependent firms, communities and workers because America created the defense industry and it is responsible for its decline.
All federal and local programs that strive to aid the transition of defense dependent individuals, businesses and communities should be reevaluated by a federal agency outside of the Department of Defense. An agency outside of the DOD will ensure a complete break from a military agenda. It will emphasize that converted resources will not soon return to military purjJoses.

Chapter Four: Adjustment Strategies and New Directions
Programs that duplicate their efforts or seek contradictory ends should be reorganized for the most effective use of national resources. A successful effort to develop a national coalition and identify new national priorities will help give direction to the review and reorganization of transition and conversion programs. •

Set New Priorities.
Three overall national priorities will help direct the choice of individual new directions: (1) economic stability, (2) public health and education, (3) safe environment. 116 Economic Stability • Advanced computer aided manufacturing systems • Rebuild and repair America's failing infrastructure • "The design and development of a national or transnational grid for the electronic transmission, processing, storage, and retrieval of information. .

11117
• Provide assistance to firms attempting to regain a share of markets for consumer goods and production equipment lost to foreign competition.

Public Health and Education
• Improved science and mathematics education using skills of dislocated scientists and engineers from the defense industry • An increased focus on general funding for education 67 • To ensure the successful conversion of defense firms America must assure an effective demand for new products with (1) Establish national goals.
(2) Demonstrate a steady commitment to adequate funding. increased sales in foreign markets, consolidation, diversification, maintenance, modernization and upgrades, and seeking non-defense government contracts.

Chapter Four: Adjustment Strategies and New Directions
Significance of prime contractors survival. The shrinking defense budget and the resulting reduction in procurement has resulted in a production overcapacity.
Diminishing this overcapacity is crucial to the prime contractors survival and to preserving profits for the shareholders. The survival of these prime contractors critical to the preservation of America's defense industrial capacity and consequently the national security of the United States. Major defense contractor' s survival is also integral to the vitality of the surrounding defense dependent communities.
Major contractors are a source of both jobs and technologies. In the light of defense contractors importance to every level of American society it must still be remembered that defense companies are commercial businesses who's primary responsibility is to their shareholders. •

Lobby for procurement of firms weapon systems.
Lobbying is a strategy used to ensure future weapons procurement business by promoting the firms weapon systems. Lobbying to slow reductions in defense spending is contradictory to a final goal of conversion to a peace economy.
Lobbying is a reactionary survival strategy and consequently self serving at the expense of the societies ultimate goal of conversion. It is used to fight defense cutbacks every step of the way and direct remaining defense spending toward the lobbying firm's weapon systems. Major defense businesses will increase full-time professional lobbying staffs as Grumman Corporation did and other firms such as 70 • Downsize the firm to meet reduced procurement needs.
The goal of downsizing is to reduce overcapacity and to shrink the firm down to a smaller core defense business. Reduction in size and greater focus on core defense is accomplished by divesting the firm of divisions not crucial to the chosen core defense business. Production employees and layers of middle management identified as unnecessary are removed. The hope is that the firm will maintain its core capacities while shrinking radically in size. Downsizing will result in the gradual layoff of many workers but the failure of a major contractor will result in the, far more traumatic, sudden loss of all jobs at that firm or division. Downsizing will also consist of the abandonment of property and facilities, the release of some suppliers and release of subcontractors so that work can be done in house. Even the best-executed downsizing creates tremendous anxiety and loss of productivity.
Mitchell Marks, director of Delta Consulting Group in New York City says, "It' s a complete disruption to the work force. It turns a company upside down." 119 • Consolidate with and acquire other defense firms.
The shrinking defense business can support a fewer total number firms.
According to a forecast by the consulting firm of Booz-Allen & Hamilton 75 to 80%

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Chapter Four: Adj ustment Strategies and New Directions of current U.S . defense contractors will be swallowed up by more aggressive industry leaders or simply exit the market altogether between 1993 and 1998. 120 Demand for each individual product, such as strategic fighter aircraft, are also able to support fewer individual firms. The defense business base will shrink still further as backlogged orders are filled. Large-scale mergers and acquisitions correlate well with downsizing of the defense firm for eliminating the overcapacity that exists within the defense industry. The main thrust of this strategy is to maintain a critical mass in specialized niches in which the individual firm is strongest.
Acquisitions allow excess production capacity within the industry to be consolidated or removed. An example of this strategy is Martin Marietta Corporation planned acquisition of Grumman Corporation. 12 1 This acquisition will allow Martin Marietta to eliminate a major competitor and its production capacity from the market. After repeated unsuccessful efforts to purchase Lockeed ' s and others military aircraft operations General Dynamics Corporation sale of its F-16 fighter division to Lockheed Corporation allowed it to concentrate on its strength as sole source producer of nuclear submarines and main battle tanks. •

Expand international arms· and military technology sales.
The United States has emerged as the worlds dominant arms supplier. 122

According to figures compiled by the Stockholm International Peace Research
Institute (SIPRI), in 1992 the United States delivered more than 45 percent of all 72 Chapter Four: Adjustment Strategies and New Directions major combat systems sold worldwide, a level more than four times higher than that of its two closest competitors, Russia and Germany. 123 America' s former main competitor for international arms export the Soviet Union disappeared with the end of the Cold War. Virtually every big defense company wants to increase its military sales to foreign buyers. 124 Viewed strictly from a prime contractors perspective international arms sales is an excellent option. It is a powerful means for adjustment to a decreased domestic weapons and military technology procurement. Increased international arms sales could replace lost domestic sales by increasing the potential market for United States arms and military technology. By arming the rest of the world, the defense industry could in turn oblige the United States to increase its own arms procurement to preserve both its own material national security and to limit regional conflicts between well armed combatants.
Two major draw backs to this strategy exist (1) the international market for arms has experienced a steep decline since the end of the Cold War while a military production overcapacity exists in many countries. 125 (2) Additional arming of the world with American weapons will intensify any regional conflicts making them more difficult to control and causing additional loss of life. An increased level of American military technology available world wide will increase the chance that those technology will fall into the hands of irresponsible governments or dangerous terrorist nations that are hostile to the United States.

Chapter Four: Adjusunent Strategies and New Directions
• Expand sales to civilian government agencies.
Sales to civilian government agencies is a strategy that will work in both transition strategies and as a bridge to conversion strategies. As a transition strategy sales to civilian agencies works to expand markets for the defense contractor. Major defense contractors intimate familiarity with governments procedures make them especially qualified to fill contracts for civilian government agencies. Agencies such as NASA, DOE, USDOT, and the FAA who's needs include high technology and aeronautical equipment will be easiest to supply initially but contracts could spread to the more peacefully oriented FDA or EPA. Medium Size and Smaller Firms.
Medium-size and smaller firms are key participants in defense production.
The sum of prime contract awards and subcontracts from large firms to small was on the order of $46 to $48 billion per year in five years 1986-90, and amounted to 35% to 37% of awards to U.S. business firms. 130 Often these firms have little experience in commercial production and marketing but many are also involved in some amount of commercial production. Smaller companies also rarely have separate defense divisions although they do keep the civilian and defense accounts separate. 13 1

Options
• Build on any previous experience in civilian commercial markets.
For many medium-size and smaller firm ' s managers, production workers and equipment occasionally even the product itself is the same for defense clients as it is for civilian clients. This is frequently the case for service firms. Some medium-size and smaller firm ' s familiarity with commercial production make it more feasible for these firms to enter commercial markets than their larger defense dependent counterparts. Defense dependent medium size and Smaller firms have the advantage of possessing skills that are more easily transferable to commercial markets than their large firm counterparts in the defense business.
High-tech production and quality inspection equipment bought for defense work has made medium size and smaller furns more versatile and competitive in new high technology commercial markets. 133 It is still not necessarily easy for these firms to enter commercial markets but help is available. It requires advanced planning, retraining of managers and engineers and retooling for new products. • Seek federal and local aid in market research, marketing, and gain access civilian financial markets.
Medium size and smaller firms need assistance in three major areas to enter or further penetrate commercial markets: (1)  The abandoned communities and their remaining residents face infrastructural decay as funds from the small population and business community are unable to support the existing facilities. The remaining worker will also be forced to take lower paying service jobs as smaller manufactures and former subcontractors fail due to the loss of defense contracts. Less skilled workers and decaying infrastructure make the community continually less desirable for new businesses relocations. As more firms move and are not replaced it becomes less likely they will ever be replaced.

Build a Defense Conversion Coalition.
Building a Defense Conversion Coalition may seem at first glance an insurmountable task. Contractors, the community, and individuals are scrambling to regroup now that the flow of defense dollars has begun to dry up . They should be eager to participate in shaping the future of the community and protecting their interest in that future.
A firm grasp of how each member of the coalition can benefit is essential to creating involvement in the conversion planning process. The communities conversion plan must have as its priorities wealth for contractors and community and employment for individuals. Every potential member the coalition should be eager to help meet these new priorities. The task of this coalition is two fold first is to coordinate the transition effort and second is to put forward a new set of priorities and then bring them to fruition.
• Determine defense dependence and vulnerability.
Once the ax has fallen its to late to plan effectively. The dependence of the individual firms is also important. A less defense dependent firm will have a milder response to cuts. The health of the surrounding region is also significant. A community located in a growing region is more likely to have a firm expand into their area before significant decay takes place.
• Determine the type of cuts that are likely to occur.
The size of the defense cut and its location also will effect the response of the community. A large cut relative to the size of the local economy that occurs quickly and without warning will be much more harmful than a small gradual cut with plenty of advanced warning.

81
Chapter Four: Adjusttnent Strategies and New Directions • Seek assistance at the first sign of trouble.
In the face of imminent defense cutbacks, immediate pursuit of economic development and emergency relief assistance may be critical for a community which has determined itself to be vulnerable. During the period of time between the announcement of the cutback and delivery of the assistance the community is on its own and deterioration is most likely to occur.
The federal government has several offices and programs that provide aid to communities impacted by base closing and defense industry cutbacks. Representatives' s offices.
The first step is to (1)  The most important factor, under the control of the community, for successful reuse of abandoned military bases and facilities is early community involvement.
Like other conversion efforts the object of conversion must be allowed to remain idle for as short a time as possible. The community must form a coalition to prevent time consuming infighting as conversion efforts move forward. Finally as the community begins to act it must pursue two plans of action. (1) The community should work with political representatives to delay or prevent closing. A delay will provide time for conversion preparations.
(2) The community should prepare and regularly update a base conversion plan to be immediately implemented if the base should be abandoned. Assistance with base conversion planning should have already been collected in the communities initial aid seeking process when vulnerability was discovered.

The Bottom Line for Communities
• Start planning before the next defense cut occurs.
• Work with firms to create partnerships.

Displaced Workers
Displaced workers fates are closely linked to the success of firms and communities in adjusting to defense reductions. Worker will find employment in communities with healthy and diversified business sector.

Relocate.
Displaced workers able to migrate to new locations where their skills can be immediately employed should so that they will remain idle for the shortest amount of time. Excessive labor migration does cause the development of idle infrastructure in the community of departure and over use in the destination but self-interest is the individuals prime concern in the transition period. •

Seek financial assistance and retraining.
Assistance is available from many sources. The former employer especially a large defense firm may have retraining programs for new positions within the firm or employment networks to aid in finding leads and training in job hunting skills.
Beside the obvious unemployment benefits communities offer. Communities with excessive defense dependence may have special programs for dislocated defense workers. Individuals should take great care to use programs they are confident will 86 Chapter Four: Adjustment Strategies and New Directions lead to new opportunities and waste time retraining for jobs that do not exist and are not likely to be created soon.
• Join a variety conversion coalitions.
The way in which an individual becomes involved in the adjustment process depends on their position in the community. Firms may have some form of "alternative use committee" to direct the firm into the future. Employees should seek out any opportunities that they are given or can create to help direct the future direction of the firm and offer their unique knowledge of the firms production processes and capacity to produce civilian products. In this way the individuals can advocate profitable conversion oriented options that may save their jobs and increase the value of their stock options in the compariy.
Individuals also should seek out local or national conversion coalitions (See Appendix B and C) or political action groups, even investment groups that focus on firms future oriented products. The individual can add knowledge, political legitimacy and clout to these groups. In this way the individual can influence decision makers both in all levels of government and with the decision makers within the firm.

Bottom Line for Individuals
•

Write personal letters, not a form letters, to your Senator and your
Congressional Representative stating your support for Economic conversion.
• Learn as much as you can about the issue of conversion in order to make constructive suggestion to your firm and community leaders.
• Join alternative use committees at work and political action committees in your community to advocate conversion strategies.

Summary
Post-Cold War defense economic adjustment will come in two forms. First transition strategies to ensure survival during change to a post-Cold War society.
The transition strategies, ideally, will be followed by conversion: strategies that will lead formally defense dependent entities in new directions toward their places within a prosperous and peacefully society.
America needs to maintain an adequate defense but the new external challenges to America' s national security are different than those encountered during the Cold War and less expensive. A continued shift of national resources away from defense spending and toward more pressing domestic concerns will allow conversion effort to proceed more smoothly. The shift of resources should be made as painless Displaced workers fortunes are tied to their communities and firms.
Individuals should first seek out any retraining or placement assistance offered by their former firm. Many firms are eager to give such assistance to establish themselves as a considerate employer which will in turn allow them to attract the 89 Chapter Four: Adjustment Strategies and New Directions best people in the future. Assistance should also be sought from the local community, state and the federal governments. Communities at all level want to limit excessive migration and are again eager to help displaced workers.

Conclusion
To best use this conceptual plan it is important that the reader read the whole plan and not just the element that appears closest to defining the reader' s role in the conversion process. Conversion must be a collaborative process between all involved entities if it is to be a true method of paradigmatic shift and not just a method of coping with the transition to a post-Cold War economy. It is important that each entity understand the needs of others involved in the conversion process.
It is also crucial that each entity understand the reason behind the other' s transition strategies.
The responsibility of the federal government, defense dependent firms, communities and individuals goes beyond mere understanding of others priorities.
Each entity must shape its strategy to best fit into a unified conversion effort.
We estimate that t.hia plan will cost U.2 bllllon in the next year-However. the det.atla of any spend.ma pro~ Will have to be worked out durine the weeks and months ahead in consulta.tton wtth many committees and ex- Set aside more research funds to gi\•e incentives to small buainess innovation Redirect detell98 Jaba toward helping the ctvtlfan econoniJ Support tax pollcies that encourage businesses to grow.

TJlA!fSITIOl'I COSTS/BElfD'ITS .
Many ch~ endorsed by the Task Force have no cost. For Instance. Increasing small business research set-uide requirements would require no new funds but would set aside up to $500 million more !or small enterprises. The same would hold !or earmark-1.na certain national laboratory funds !or in· dustry coord!n&ted research effort&.
Where tncreued fun~ is recommended. sound lnvestmenta to help today's defen.sedependent human. community and industrial resoul'Ct!S and will pay dividends !or years to come. Such tnvestmenta today can help set the st~e !or a sustained economic reco\··. ery.
Although many of the Task Force recommendations will need further development . during the com.in& months. the Task Force hu made a prelJm.lnarY. cost estimate of Sl.2 billion !or all specific prosnm spendinii elements. The Taak Poree plans to continue v;orking with the relevant Senate committees and expert.I to develop specific fundinii rerommendationa.
Flnally. It should be noted that. under· su.ndably. many of the de!eme transition programs recommended for increased !und-1.na and emphaail are located outatde the Defense Department. The Tu.It Force is encouraaed thAt many of these proirrams can be funded ~ Defense funds for FY93 only. The process of moving this pack.a&e forward 11.ill reQU1re cooperation between numerous committees. the Senate Republlca.n leadel"Ship and finally, the White House.
In future years. the Tuk Force stroniily recommends that tun~ and &nY control over transition Protnma that should . be located in non-defense acencies be transferred to those agencies. TOW AJll) .%BJ: rtrrtnlE This report emphaaizes the need !or com· prehensive planninii aa we reduce our def ense spend.in.g. The Task Force recommendations are meant to set in motion immedl-ate. realizable actton that wfil".Iay a· found&· tion for future efforts to bend ·iirowtns defense transition challenges into economic expansion and opportunities. Future defense cuts. the sh.ape of the economY. urve defense firm employers to provide incres.sed communication on the statua of contract termin.ationa. proiiram curta.llment. and the end of a production line. 4.. Allow States to reimburse their discretionary accounts with Defense Conversion .Adjustment <DCA> funds 11 they have provided " Rapid Response" services to defense v;ork:ers. and in doing so. contributed to the depletion of their discretionary accounts.
C. Re-0rtent1nii Department of Defense MilltarY Employees l. Support the proposals to pro\; de the Secretary of Defense voluntary early retirement authority to memben having between 15 and 20 years of service: 2.. Enco~e military personnel who retire under the early retirement program to take approved Jobs in the public sector by allowing them to increase their military years of ser:vtce credit by one year for each year of publlc service up to a · total of 20 years.
3. Help military personnel get the train-1.na. education. cert111cation. and Job placement which may be · required for employment in critical public service Jobs. such u education. law enforcement. or medical services.
•-Support a one-year leave of absence with pay !or a military employee with relatively few trana!erable skills to pursue courses o! Instruction or education either within or outaide the milltarY. 5. Pro\;de early retirement incentives and transition benefits !or reservista. D . Assistance !or Department of Defense C1\1lfan Employees 1. Urge the Senate GOvemmental Affairs Committee to report le&islation on' how to provide the Department of Defense with the necessary tooi., to manage the dolmSiz.
1ni of the civillan workforce. Options to consider include retirement incenth·es. annual lea \'e accrual as retirement service credit. extended health insurance coveraiie. expanding DoD's Priority Place Program to include all federal agencies. and creat!nii a toll-free information number at OPM. 2.. Direct DoD to make an inventory of tn.ininii prouams within the Defense Department traininii establishment that can pro\;de skill tra.inine !or jobs in the civillan economy. Upon completion. DoD should identify which programs would be applicable to non-DoD ch'illan employment. .Authorize DoD civ111an employees facine separation throuiih a reduction-in-force or base closinii action to ~Ive up to one year of ak1ll tral.Ilm. in the Defense traillin8 establishment while still employed in DoD.

Summarv Ftndingi
CUrrently 34 bases are scheduled for closure. 48 bases will be "~ed ... .Another round of base closures will be announced in 1993. In addition. many defense industry plants are suf!erinii the effects of reduced defense spen~. The OT.A estimates that over 150 U.S. communities will be hard bit by defense downsizing.
The Pentacon's Office of Economic .Adjustment <OEA> is the qency in ch&rie o! helplni communities plan for base and de-!eme pl.ant cloaures. It bu a staff of 17. and a budiet of S7 million.
The Bush Administration baa requested that OEA fund.in.g be cut to H million in FY 1993.
"-Support a one-year leave of absence wtth pay for a military employee wtth relatively few transferable akllla to punJUe courses of . Instruction or education either within or outside the mllltary.
Ftndi""' Currently, the Montgomery GI bill provide. benefit.a which are available to mill· · tar)' peraonneJ for post-eervtce education. This educational leave of absence would enable a.ctive duty milltarY membeni to take educational leave to prepare for critical cl· vtllan Job&. Thia proposal would help mill· tar)' members prepare for new careeni before becomina dl.slocated.. net of benefit.a CVoluntan' Separatloc In· cenUve and 8pedal Separation Benefit> for separattns· military personnel provided In the National Defeme ·Authorization Act for Ftscal Yeara 1992 &Dd 1993. Slx weeks later. a DoO · oU1da.l resiionded. uour <OoD's l strateu for reducins the worldorce la to encourqe voluntan' &Urltlon • • ·• u.stnc creative out-pl.acenient efforts. such u Job fa1r3 and Job clubs • • • and the • ·• • Defense Outplacement Referral sntem." The first brief~ for the Task Force's Worker/Communitr Group on April 6, fo. cused on "Displaced Defense Workers: Tr&ns.ltton Wues." The General Accountlni Office told the memben th.&t DoD will not be &ble to maintain a balanced ctvtllan workforce by folio~ tta current &l)proach ui dvill.an force reductiom-voluntary attrition. retirementa. and a parti&l hiring freeze. GAO also believes that DoD will not reach the required personnel reductions R«ommendat!on ' 1. Support proposala to provide the· Secretary of Defense voluntarY earll' retirement aut hority to members havinc between 15 and 20 Ye&l"ll of service. . . R«ommendatton 2. Encourase military · penonnel who retire under the early retirement procram to ta.lte &l)proved Jobi In the public sector by allowtns them to lncreue their mil1t&ry years of aervtce credit by one year for-each year of publ1c service up to a total of 20 years.
Ft ndi""' . By the end of !1.scal year 1993, DoD plam to reduce the ~ and force of the National Guard and Reserve components by 18 percent. U these cut.a are approved by Con· sress. at least 185.000 people will be released from the Selected Reserve.

May 21, 1992
CONGRESSIONAt ,RECORD---SENATE· S7253 their-iuoup health plan at their QWD expense, the reality for many displaced em-;>loyees Is that they will not have the money to pay for continued coverage. _ Defense cuts also pose a sicniflcant problem for military retirees who llve In communities where bases are scheduled to close.
Retirees and their families lose a maJor benefit-access to local base h~itals. cllnlcs. and pharmacies. Consequently, they will be forced to turn to CHAMPUS or Medicare both of which require cost-sharing.
To deal with the urgent. immediate needs of those Impacted by defense cuts, Congress should consider encouraging the Depart· ment of Defense to provide military retirees In base closure area,., with alternative health· care options which are both accessible and affordable. In addition. Congress should explore the possibility of as.sist1ng the numerous defense industry employees who lose their jobs because of defense reductloru. and a.s a result, lose access to t_ heir health care coverage.
-Overall. the Task Force believes that the need for quality, affordable health care !or dislocated defense worken as well as for all Americans would best be_ achieved through comprehensive health care reform.
2. Property Disposal For inany years. the General Services Administration cGSA> was operating numerous defense-related property disposal programs. including programs to remove DoD property from a military Installation after a base closes. However. due to a policy change in 1988, the Department -of Defense began controlllng the property disposal programs for closmg military bases. The responstbllity for removing and disposing of base property was delegated to the various -Armed Serv- Miuiy small defeme prt!ne contractors and subcontractors-which account for approximately one-third of DoD purchases-are more llltely than iar1re prime contract.on to already have commercial customers, and are more capable of dtversifytng into commercial markets since the equipment. processes. and labor force used to produce items for the military are often the same a.s those used !or commercial production.
. Nevertheless. small defense firms particularly need assistance with sales and marketing If they are to successfully diversify into new commercial markets. Moreover. the productivity and competitiveness of small and medium sized defense and non-defense firms could be greatly enhanced if they became fainlliar_ with and implemented bestmanufacturina practices and up to date; offthe-shelf technologies.
The United States bu-over 355,000 of these small and medium -manufactur:ins firms CSMEs> with 500 or fewer employees each. They employ 8 to 10 million workers. account for more than half of manufacturing value-added in the U.S~ and they are the heart of the subtler firms that support defense prime contractors. Nevertheless, SMEs in general Jag in the adoption of advanced manufacturing. technology, broadly defined-equipment. worker training, . shop floor organization. quality, etc. _ One way to address the!e needs Is throuah support of manufacturing_ extension cent.en. These centers operate on _ a model analoeoua to that of a.grtcultural-extension programs which assist farmers with improved aartcul· tural production methods. The U.S. currently spends less than $100 mllllon per year on manufacturine extension <$20 mm federal>, compared to $1.1 bWion on agricultural estension. The Oermans and the Japanese on the other had, Invest -heavily in these ser.r-lces for their. industries. Japan has a public network of 170 manufacturing support cen· ten Ckohsetsushi) which employ 7,000 employees and receive $500 nµllion per year in federal funding. .

-
The Task Force was cautioned about a growing concern among local communities regarding Department of Defense property disposal policies at closing military installations. The Congress should review· the policies surrounding base property di.sposa1. in an attempt to monitor and expedite the dis· tributlon process of former base property.

III. Il'lllUSTRIAL TRANSITIOJI,-ECONOMIC GROWTH, AND JOB CR&\TIOlf
A. Industrial Transition and -AS51stance Manufacturing extension proirrams have been endorsed by several OT A reports,_ the Competitiveness Polley Council, the Council -on Competitiveness, the National Academy According to estimates of ihe Brookings Institution. DoD outlays !or gc;>ods and serv-. lcea will decline over the period FY1992-FY2001 by as much as 48%. nie Administration's own budget figures project a decline of 253 in these outlays over the period FY92-97. Because the Defense Department does not maintain comprehensive records of subcontractors. It la impouible to say iust how many firms will be impacted. but It will be many thousand If.not tens of thousands. Some Iarire. prime defenae contractors are adopting strateglea to-survive lowered def e.n.se spendm. by down-sizing their operations. Some are tryina to Increase non-military sales to branches of government other than the DoD. Large prime contracton are less suited for diveniflcation into new commercial markeu than the smaller primes and subcontractor. thouirh. and aa such they are lesa likely to pursue this strategy on a large scale.
Recommenda.tton <STEP> -Another Department of Commerce manufacturing exteruion service Pl'OCJ'UD la the NIST State Technology Extension Program CSTEP>. STEP helps state governments im· prove the coordination and effectiveness of their technology and manufacturtnc extension programs. STEP does thi8 by providing small planning grants to the states through a competitive awards process and by holding workshops and related activities to share in· formation among state irovernmenta.. STEP currently operates on a very low budget-$1.3 million per year.
The Task Force recommends that funding for this program be expanded. _ Recommendation --DoD Manufacturing Extension Program A DoD Manufacturing Extension Program has also been authorized, but not funded. to a.ssist with transitional needs . and to modernize the defense industrial. base. This program provides matching DoD funds for a wide range of existing state, 1<>cal, and nonprofit prograzrus includm. in-factory &amt· &nee programs, teaching factories, computer Integrated manufacturin8 <CIM> centers. flexible manufacturing networks, and hiirhperf ormance manufacturing 1ntrastructures. The emphasis of the program ill on deploying proven, off-the-shelf t.echnology and manufacturing methods.
-orants are awarded throuch a competitive process which empha&i7.ea:: l> The need for integrated programs that tackle interrelated problems of training, management, and technology; 2> Strollir involvement by key customer firms, manufactunns equipment vendors. and industry and · labor croups; 3> potential to reach de!ense-SMEs making the tramitlon tO the commercial sector. The program would be operated -with close coordination between the Defense and Com--merce Departments.
. The Task Force advocates funding for this program.
" ----- : 2. Fund Regional Technology Alllance Address common industry tramition needs and encourage overall economic activity through-a focus on regional industrial clusters. Fund regional efforta devoted to applied R&D. specialized tralnln8'. market research. export promotion. and testbed facill·

ties. Finding11
As Mlchael Porter writes in The Competitive Advan~e of Nations, hldllY competitive industries are almost-always found In tia'htly knit clusten <e.g.. optJa in Roches-ter. electronics in Sillcon Valley, aerospace 1n·-Seattle and Southern California>. Defense SMEs in a particular sector tend to locate near prime contractors of federal R&D facilities. and thus are often reo-sr&Phically clustered. These reaional clusters offer common opportunities and comnion problems such u tramiUonal umtance. worker t~. R&D, export promotion. and the supplier-customer communication necessary to compete ID hiah-v&lueadded commercial markets.
-The -Retrtonal Technoloa ADlance pro-IJ'&Dl in the Department of. Defense Calso known as Critical TechnolOCY AJ>pllcatJon Centers> la-a way to addresll these needs. Th1I program, -which has been authorized bUt ·not funded. would provide federal support-for a · systenf of restonal, sectorallY· hued alllances. with top priority for defense-depelident areas. The -alliances would -be industry fed with Participation by state s 7254 CONGRESSIONAL RECORD -SENATE May 21, 199J and local aireru:tes and univers ities. Funds would be awarded on a competitive baais with the federal share of funds equal to 50%.
A particular goal of the program would be the promotion . of supplier networks and other forms of Inter-firm collaboration. It would aJao provide B.Plllled R&:D and shared Industrial sernces oriented to SMEs makins the tnrlsttton from defense to commerci&l production.. Buch services would Include. testtng facfltttes tor new products and prototypes; de3igo and management asststan~ education and tra1niog; manufacturing extension; market research and monitoring: export promotion: qu&l.lty testing and standartis cenl!ication: and other services as de-term1oed by member fl.rm.s.
OT A recommends th.Iii approach in A!ter the Cold War. . Recommendation 3. Provide Doe Grants for Regional and State Industrial Services Programs Promote a quick and flexible respoose to the tn.ns1t1onal needs of defense &nd other tndustrtes throU&h support of st&te and ~ &iom.J lndustrtal services progra.ms_

FiJ&dinga
ManJ of the fedel"ll programs descr1bed above <STEP. DoD Manufacturing Exte:n-sM>n Proeram. Technoloey AJliance> are decentralized In nature; that is they provide matching federal funds for extsttng state or regional Proerama. Beca.u.se state govem-menLal enUties a.re., clo6e to the problema of flrml and work.era In their own area&. they can often provide a Quick.er. more flexible. and more approprt&te respooae to their Individual state problems than the federal · government can.
To provide addJUonal support for state assistance to Industry, and to Improve ooord.ination with ongoing federal efforts. the Ta.sir. Force proposes that a new grant program be developed within the Department of Commerce's St.ate Technology Extension Prop-am. These ir&Dt& would have three purpoeea: 1> to promote "one-stop shop-Pini" tor comp&niea through the coordin&tlon of all Federal and state resources devot.ed to asslstina &m&ll defense and non-defense m.&nu!acturlng !lrm.s. lncludini llOt only technology extension progra.ms but also export promotion services. Small Busl· nesa Deftlopment Centers. worker ~ proerama, and other industrial aervtces: 2> to' usist In the creation of Industrial serT· I.eel programs In atatea without them: and S> to pro,;de direct tundina 1JUpport to oogoln.state industrial aervicem progra.ma. Recommendation Much of this Is attributable to broad political and macroeconomic !acton1. such aa the federal budget deficit and trade btr.rnerg .a.broad.. However. Jt Is also clear that U.S. export promoti.on progTILlllJi are underfunded and lag far behind those of our competitors. For ex.ample: awaiting a House-Senate Con!erence. would establish a S5 million line-item tor this program.. The Task Fcree beli eves th is proposal has great merit.

Amend DoD Recoupment Policy
Encourage defense ftnns to diversify and achieve a paycff for the commercial ecoco-lllY from defense R&D by revising UJ.e policy which currently requ ires recoupment of R&D money spent on military t echnol· ogies that a.re commercialized_ In FY 1991. according to the General .Accounttng Office. the U.S. spent $2..67 billion on export promotion programs.. About three-fourths of this amount-$L97 billion-ls · spent by the Agricultural Department.
In 198'1. according to t he Commerce Department. Canada. spent almost $17 per capita on commercial services. while the U.S. spent I0.41 i:>eT" capita to promote industria.l exports.
In 1990, according to figures compiled by the Commerce Department. France maintained one foreign commercial officer In Tokyo for every si.x French businessmen there. and Italy maintained one foreign commerda1 officer for every two Italian buainessmen. The U.S. ha.d one for every 62 businessmen.

Be commendation
Increase Funding for U.S. and Foreign Commercial Service The U .B. and l"oreign Commercial Service maintains a network of omces in the U .s. and in m&Jor countries a.cross the globe. By helping U.S. companies expand their contracts In other countries. the US&PCS serves literally on the ufront lines" in the export promotion effort.
A 1989 GAO report tund considerable diltorp.nJzadon at many po.!t.11 in the U.S. aod &bro~ However, the US&FCS has Just completed a full«:ale strategic review of lta Diversification into the co=erctal secto r Is difficult tor large prime defense contra.c· tors. 1n part becall3e the technical nat ure of defense production is different from com· mercial production. e.g., special processes. equipment. and skills used to assemble large weapons systems such as tanks and aircraft.
Neverthelesa. defense contracting as car· ried out by the large primes is so different from commercial production. primarily becautt of the many unique requi.rement.s that the DoD pl.aces on the contractors. These requirements include unique accounting practices, audi~ practices. procurement practices. As a matter of law, when defense companies sell defense equipment to foreign countries. the companies are required to add to the cost of any such equipment any noorecu.rrlns costa of developtng the equipment that were paid for by the U.8. government. and to allow the U.S. government to recoup those costs. E.g., if the -U.S. government paid tor R&D on the system. then a portion of the Rc!rD must be attributed to all subsequent sales, and that portion Is repaid to the U.S.
As a matter ot policy, not law. DoD has expanded the recoupment policy to cover component&.. In the 19898, the policy was further expanded to cover technology. This imPOISe5 a significant paperwork burden on companies. becanae ft requires them to track all technology they UR, to determine what wu developed at DoD eXJ>ense, and to add that cost to the price of the product.
The difficulty or t~ components and technology serves u a powerful disincentive to the application of defense technologies In the civilian sector. and adds to the cost of civtllan product.a that uae defense technol-og1ea.
.  sector without t he. paperwork and financial burdens that have been imposed by DoD'1 recoupment policy. Such a revision will benefit defense companies which would be more diversified and hence less vulnerable to def ense downsizins. and lt -wlll benefit the economy in reneml which will enjoy the fruits of government ftmded defense R&D.

B. Investment in Growth Technologies
In the long run. adJustin&' to lower defense spendini and .to the structural changes that have battered our economy over t he last decade can only be accomplished by private and public Investment ln strategies and programs which create economic growth. Economic iI'Owth depends on Increased productivity, product Innovation. and leadership In Industries· with· a · ~h multiplier effect for the economy, all of which create higher waaes. A comprehensive rrowth strategy designed to realize all of these soals would necessitate broad recommendations covertns fundamental education and training reform.
deficit reduction stn.tecies. changes in· tax POiicy and financial reculation-to encourage formation of patient capital, strategic trade · pallcy, and a stratesic technology policy.
The Task Force charter wu . not broad enough to make thorouch recommendations ln all of these areas. In.stead, the focus on transition and reorientation led to. a set of erowth recommendations auided by the concept of reinvestlns defense money and resources In projects which offer high patentlal pay-off for the commercial. economy.
Central amons such projecta are effortl to develop critical technolocies which underlie the hJgh value-added. hish :waae. irowth industries of today and the ·next century. In addition to fostertns lo~~term economic rrowth, such Investment.a will also provide immediate transitional · aB.ristance, · since ·these lnvestmenta mean new R&D opportunities for companies facin& the loss of defense projects.
.-· · . ,._ , . . The U.S. Government. spends . approxJ. mately $70 billion per year on R&D, sixty percent of it for defense related R&D. Ara percentage of GNP. the U.S. spends only two-thirds the amount on non«fense R&D aa our ma.Jor competitors the ·.Japanese and the Germans do. ComiDercial spinoffs of def ense research do occur, but rel7tnc on splnoffs. ta not a reliable or effident way -to achieve commercial · technolodcal innovation.
. . . While . l&rier overall invstment in R&D mlsht be desirable. It LI cleariY. important that with the end ot the cold war, the U.S. should be Invest.ins a Iarser POrtion of lta R&D in project.a wbich benefit the commercial economy. MoreOftl', that.portion of the · R&D budset which continues to be spent for defense need& abould be spent ln such a way that _it provides sreater·-commerclal benefits-so called "dual-use" R&D. .  t ential for application In the civillan sector. Finding1 G!Yen the aub&tantta.l reductions in d.e-fellSe eipendit.urea anticipe.ted OYer tile next five yea.ra, we can no longer expect def ense R&D to be perlormed prlmarily by def eme-dependent fl.nm th.at In~ substantla.l amounta of their own funds in R&D in uiUcip&Uon ot profitable returns durine .arge product.Ion runa.
We will lnatead need to rely to a much mater extent on fl.nm t.h&.t are not dependnt prim&rily upon a-overnment fundine, but ;i;llich have a at:'~ commercial b&le. In &d-11Uon. defenae needs will incc~ be :net ~h the application of dual-use :.echnologies and producu. DoD currently invesu in R&D oo the :>a.s.is of spec:Wc _military priorities. In&" general oversl&ht of the program. each agency ma.int.a.Ina ita own separate proiiram.
The SHIR ha.a three pha.ses to it: CD An agency puts out request. for pro-posal& for concept.a/producta/teclulologiea th&t they need developed Tbe agency may award grant.a up to $50.000 per proposal to evaluate the scientific and technical merit and feasibllit)> of the concept which i8 ot interest to the aeeDC)', This phase USU&ilJ' · l.a&t3 about 8 month&.
C2l ThOlle proJect,i whlch &how potentla.l a!ter the Phaae J evaluation can compete to perform p~ research and development on the concept for up to $500,000. Fundin& tor Phase JI awards usually la.sf.Ii 1 -~ yeara, rues "lr"OWd decide with which of the &C!!D· cy's .L&bocatorles or laboratory proerams the-y wish. t.o work. We propose an iniU&l aet-8.liide of 2 percent tor tbe fl.rst year, 5 per. cent for the second through filth years. aru1 10 percent for subsequent years. During the first year thia set-aside would generate about 1200 million for these activities. Aftn. cies and d efense Laboratories also would be reQuired to set up Industry-university advisory committees to advise agency heads on which agency technical capabWtles migh t be of most use to industry.
Recommendation Amend Ste\'enson-Wydler Act Am.end the Stevenson-Wydler Technology Innon.tion Act of 198-0, which a-ovems tech· nology transfer from federal laboratories. to require tha.t " dual-uae" R&D performed by deferae laboratories be done in partnership with industry whenever poosible. This nep will speed t.be tran.sfec of technology to commerdal Industry and will ensure th.at oommerd&l companies can produce th~ tecllnol~ for the military. should fW now that the Cold War is over, and how the labs can best fill this role. defense laboratory ~eta to aupport ID-try driven approach to est&blishtne the dustry-led R&D projects... Com.i-nfea and ma.nutacturtna lntrutructure necessary ·for consortia would Proc>OM projects on a cos&.-· competitive producttao OTer the next decade · shared b&sLs. and awanis would be made and beyond. IDdustrY ·would be requtred to through a competitive process. The compa· match federal contrlbutiona to the project.

The Situation
We live in an extraordinary time in the history of our state, nation and the world --a time of enormous and fundamental economic, environmental, social and political change. How we manage change today will define the future for generations to come. A new and rapidly changing post-Cold War world challenges us to revise long-held security concepts and to reorganize our economy from a military to a peacetime mission. Security is being redefined to mean more than military defense and must be held in common to provide for economic, environmental and social well-being. It acknowledges global interdependence and the need for complementary domestic and foreign policies, and international structures and cooperative relationships to integrate all nations and people into world economic and political systems. It understands a balance must be achieved between its interrelated pieces and that Cold War levels of military spending have tilted the scale too far in favor of defense.
In the United States, this imbalance has left us with a legacy of debts and deficits, social and environmental problems, and an ailing economy unable to provide jobs for our people and compete in the global marketplace. To pay for higher and higher levels of military spending, we invested less and less in our domestic strength. The painful consequences of this choice are a weakened economy, environment and people. Just as a healthy business must continuously reinvest in itself, so must a nation. Because we have neglected investment in our economic and social infrastructure, we find ourselves falling further and further behind other nations which have chosen to invest heavily in these areas of their future.
The good news is that now that the Cold War is over, we can rebalance our priorities and investment decisions. We can reduce military spending and free up resources to reinvest in America. But while this is a welcome opportunity, military spending ruts could have a devastating impact on our already troubled economy, particularly on those businesses, workers and communities whose livelihoods depend on defense. Our challenge is to rebalance our priorities and reallocate our resources in a manner that mitigates the impacts and maximizes the opportunities of economic change.
To meet this challenge, we should commit a large portion of the peace dividend to funding initiatives in new national mission areas for the economy such as environment, transportation, energy, housing and education and other areas of infrastructural need. An economic development policy that makes investment in such wealth and revenue-producing initiatives will not only meet our nation's most pressing needs, it will create

Economic Conversion Project Goals
The Economic Conversion Project is a non-profit, non-partisan organization of Maine people dedicated to creating a sustainable society based on a healthy economy, environment and people. Motivated by this goal and post-Cold War opportunities to achieve it, the ECP facilitates an economic conversion process and partnership between diverse stakeholders that seek to: (I) shift national priorities and resources from defense to domestic purposes; (2) assist defense-dependent industries, workers and communities make the transition to comparable civilian enterprise; and (3) transform our overall economy into one that is equitable and sustainable in the long-term. To achieve this implies the need for new principles, policies, structures and democratic processes that support such an economic shift.

Strategies * Education
Educate ourselves, the public, and policymakers in a way that is personal and empowering to broaden informed public debate and involvement in economic conversion and sustainable development planning and implementation * Outreach Reach out to all interest groups and individuals with a stake in our common future and bring them to the table to talk, listen, and learn from each other

* Collaboration
Encourage all stakeholders to find common ground on which to build a shared vision and collaborative strategies to achieve it * Action Encourage and provide opportunities for stakeholders to take effective action to influence public policy

Strategic Objectives * Partnerships
Initiate, facilitate and participate in strategic partnerships between diverse stakeholders in the public, private and non-profit sectors to engage in dialogue, find common ground, and collaborate on common economic conversion and development goals and plans to achieve them.

Evaluation & Achievements
The Project holds an annual evaluation and strategic planning retreat to look at where we've been, where we are, and where we want to go. To-date, the Project has set and achieved the folloiwng objectives: Persuade the federal government to prioritize economic conversion and sustainable development by enacting policies and inves~ent that support these priorities Strengthen the organization's effectiveness and sustainability by building a broader and more involved constituency base, nurturing unity and leadership, and securing diverse and long-term sources of funding Major features of this partnership are: •Defining a company's human, technological, and manufacturing assets and services •Research to facilitate technology product and service transfer and define new markets.
•Creation of joint ventures, cooperative manufacturing for investment, product development and market enhancement.
•Researching and developing partnership alliances (domestically and globally).
•Development of collaborative business models of how companies might work together to practically apply their resources.

EMERGING TECHNOLOGIES PROJECTEIOU.S. DEPARTMENT OF COMMERCE ECONOMIC DEVELOPMENT ADMINISTRATION (EDA)
Funding was awarded from the U.S. EDA through a grant submitted by the EIC Technology Advisory Council. In this program, the EIC works with Newport County Rhode Island defense contractors in focusing upon the identification of new emerging technologies that can be refined and marketed by defense dependent businesses and entrepreneurs or co-developers in partnership with other defense or civilian companies.
The project supports research and development assistance with business and marketing plans, and furthering networks for financial and information support as defense contractors analyze and pursue potential opportunities in civilian markets. Current client products include computer systems for waste effluent monitoring and detection, recyclable glass products for construction purposes, medical imaging systems and fax modems, and a variety of other software and manufacturing innovations.

ENTERPRISE CRAFTING PROGRAM
Adaptable to both management and production employee populations, this project specifically addresses the needs of employees whose positions have been terminated due to the defense budget cuts and are considering their own small business. Clients include the Electric Boat Division of General Dynamics.
Preliminary workshops demonstrate practicalities in the creation of a small business as a career direction. The process takes participant from initial examination of preliminary business concepts to the formation of a final business plan and for market-entry decision-making. The program includes a unique individualized micro-market opportunity study to validate a participant's enterprise concept.

EIOUNIVERSITY OF RHODE ISLAND TECHNOLOGY MATURATION PROGRAM
Through a collaboration with the Research Office at the University of Rhode Island (URI), an EIC Enterprise Development Team has implemented an operational model for the identification, evaluation, selection, and preparation of research developed processes, patents, and services in order to facilitate private business market entry. EIC/URI staff and program clients from the defense and private sector interrelate to apply technologies and products directly to Rhode Island client firms to enable them to acquire potential services a~d new products.

EiC -CENTER FOR TECHNOLOGY COMMERCIALIZATION (CTC), INC. TECHNOLOGY TRANSITION ALLIANCE
NASA's Northeast Regional Technology Transfer Center has created an alliance with the EIC increasing its effectiveness to provide clients with special research and resources for technology transfer and transition. The CTC offers specific assistance in transferring technology from university and government labs to the marketplace and provides businesses and entrepreneurs access to technologies developed around the globe. This adds to EIC present capabilities to provide readily accessible information concerning existing business ventures, markets, and technology resources essential to creating and nurturing the relationships that strengthen international business.

US NA VY NATIONAL LAB ORA TORY PROGRAM
This project administers political and community support of intentions by the U.S Department of the Navy to consolidate certain advanced research projects in Newport, Rhode Island and to expand the existing facilities of the Naval Undersea Warfare Cen ter (NUWC) near our local Newport Naval Base. As implemented the program will result in Newport being the site for one of four new national laboratories established by the U.S. Department of the Navy.

Mid-Atlantic Region
Regional FLC Coordinator DoD-Naval Research Laboratory 4555 Overlook Ave., SW Washington, DC 20375-5000 202/767-3 744 Contact the regional coordinator of the Federal Laboratory Consortium (FLC) for information regarding the use of federal technology, small business workshops, and the use of the FLC Locator.  The state-level agency responsible for all local economic deveiopment and adjustment activities. The agency also provided export and international investment assistance to communities.

District of Columbia
To facilitate economic development and improve productivity and quality, the program provides engineering and management services such as technical assistance, information dissemination, applied research projects, and courses and workshops to businesses, industry, and local governments. The center's primary task is to seek out emerging technologies from federal labs and universities, which can be used by small and medium-sized firms as they evolve technologically. The center provides technical assistance by accessing university faculties in engineering, business, and management as well as consultants and center staff members to conduct needs assessments and identify other resources for assistance for instate businesses.

TN Department of Economic and
Community Development 320 6th Ave., North Nashville, TN 37219 615/242-2456 The state-level agency responsible for local economic adjustment activities and for providing export and international investment assistance to communities.

Midwest Region
Mid West Center for Labor Research 3411 West Diversey A venue Suite 10 Chicago, IL 6064 7 312/278-5418 A nonprofit organization dedicated to helping industrial communities save manufacturing jobs.
In addition to publications such as the "Early Warning Manual," MCLR conducts feasibility, labor impact. and industry retention studies for communities in the region. Representatives from the ten regional offices visit businesses to help identify and analyze technical and business problems and either provide solution assistance or identify resources that can be used. The center provides a variety of services to small and medium-sized too ling, machinery, plastic processes, and metal-fo rming firms such as problem assessment and solution identification, implementation, and integration. The state-level agency that provides export and international investment assistance to communities.

Mid-Continent Region
Regional FLC Coordinator HHS/PHS/FDA-National Center for Toxicological Research NCTRDrive Jefferson, AR 72079-9502 5011543-7516 Contact the regional coordinator of the Federal Laboratory Consortium (FLC) for information regarding the use of federal technology, small business workshops, and using the FLC Locator. The center helps entrepreneurs develop new ideas and businesses develop marketing plans as well as refer businesses to other resources in the state. The center also provides assistance in industrial and chemical engineering. The state-level agency responsible for all local economic adjustment and development activities and for providing export and international investment assistance to communities.

Iowa
Center for Industrial Research and Service 500 Iowa State University Research Park Ames, IA 50010 515/294-0932 The center's staff specialists, private liaisons, and university expertise provides Iowa businesses with problem identification, assessment, implementation, and follow-up services in the areas of productivity engineering, marketing, and management.
IA Department of Economic Development 200 E. Grand Ave. Des Moines, IA 50309 515/242-4743 The state-level agency responsible for local economic adjustment efforts and for providing export and international investment assistance to communities.

Kansas
Center for Technology Transfer Pittsburg State University 1701 South Broadway Pittsburg, KS 66762 316/235-4114 The center provides a variety of technology management services to Kansas firms including design, testing, prototype, product development, and processing assistance through analysis, training. and educational services. The program helps small businesses and entrepreneurs overcome production or technical problems, improve production processes, and capitalize on advanced production techniques and technologies through technical assistance from its two regional offices. This recently created center will attempt to create a "Technology Transfer Delivery System" that will help small manufacturing firms incorporate technology into their operations. The center is also planning to design, build and operate a mobile factory for on-site training seminars.

NM Economic Development and Tourism
Department 1100 St. Francis Drive Santa Fe, NM 87503 505/827-0300 The state-level agency responsible for all local economic development and adjustment activities. Contact the Director of International Development at 505/827-0309 for information on export and international investment assistance to communities. The programs are tailored to meet participant's individual needs, and emphasis is placed on long-term training (both educational and occupational) that will make the dislocated worker competitive in the workforce of the future .

VII
Retraining Services: May include classroom, occupational skill, and on-the-job training. Basic and remedial education, entrepreneurial training, and instruction in literacy; English-as-a-Second-Language may also be provided.
Readjustment Services: Includes outreach and intake; development of individual readjustment plans; labor market information; job development; job search and placement; supportive services (including child care and transportation allowances); relocation assistance and pre-layoff assistance programs.
Needs Related Payments: Eligible workers who have exhausted their unemployment insurance (UI) may receive needs-related payments to help them complete training or education programs. Payments may not exceed the individual's UI benefits or the poverty level, whichever is higher. To qualify for payments, certain enrollment rules must be met.
Skills upgrading: In addition to the services listed above, skills upgrading may be provided to currently employed workers in non-managerial positions in order to convert a Defense facility and prevent a closure or mass layoff, and to replace or update obsolete skills to facilitate re-employment of such individuals. (DCA grants only).
N OTE: A limited amount of DDP funds may be used to implement high performance workplace and workforce participation systems, and new production technologies to assist conversion efforts. I-13