The Business of Peace
Susan C. Strong
WITH THE collapse of the Cold War system in the late 1980s, serious discussion
of economic conversion reemerged in American political debate. For the first time
since the end of World War II, a major shift of national resources from military
to peaceful uses seemed a real possibility, a topic for something other than utopian
speculation. Now, only a few years later, mainstream discussion of conversion
is increasingly marked by a disturbing pessimism.
This pessimism recycles the old argument that conversion cannot succeed. The argument
was never any good, but it is especially dangerous now. If skepticism about economic
conversion continues to grow, then fear of job loss will build more support for
high US military spending and a flourishing arms trade. And that means a renewed
global arms race and the end of prospects for cooperative security.
In the face of this dismal development, one important source of hope is the sheer
amount of local and regional conversion activity that is now moving forward. To
be sure, we are not seeing a comprehensive reworking of the Cold War economy.
But the wide variety of programs already in progress exemplifies future possibilities
and provides a counterweight to current skepticism.
State governments, local communities, and defense firms are seriously pursuing
economic conversion projects. Many of these projects are making a profitable business
of applying defense technologies and skills to new civilian uses, from protecting
the environment to monitoring trucks. The federal government, too, has taken steps
in the direction of conversion planning. The FY90 (Fiscal Year 1990) Defense Authorization
bill included $200 million for conversion. That is small change in a federal budget
of $1.5 trillion. But it was the first such allocation since the beginning of
the Cold War. By FY94, funding for conversion had grown to $2.5 billion, a 12-fold
increase, though still dwarfed by a $275 billion military budget.
The shift from political impossibility to pragmatic planning has also changed
the character of political advocacy in this area. The current federal legislative
agenda for US conversion advocates focusing on such practical steps as mandating
adequate advance notice to defense workers of contract reductions or terminations,
and requiring companies to plan for job retention and collaborative alternative
use planning as conditions for receiving federal assistance. This is the kind
of day-to-day effort needed to end the dependence of the US economy on the profitability
of the military sector.
Despite all this movement, however, a broader, more comprehensive economic conversion
-- a "big conversion" -- continues to be stalled. It is blocked in part
by familiar American fears about government involvement in the economy -- fears
which ignore the role of military spending as a de facto federally funded jobs
program of dubious economic merit. According to a 1993 Congressional Research
Service study, every $3 billion spent on civilian economic stimulus nets 12,000
more jobs than the same spending on the military. The "military Keynesian"
strategy of relying on military spending to stimulate the economy was never the
best economic strategy, but it is now one the nation literally cannot afford.
The US arms trade also plays a role here, with its link to an outdated foreign
policy based on arms sales and providing markets for defense producers. The United
States continues to seed the developing world with weapons that may someday kill
our own soldiers. And while the real problems of the planet -- overpopulation
and poverty, increasingly scarce and polluted resources, swelling refugee flows
and attendant social breakdown -- worsen, aggregate global military spending continues
to run at roughly $600 billion a year, despite the reduction in international
threats. With a military budget that dwarfs any other, the United States is the
worst offender, and the effects of the civilian "investment deficit"
are also being felt at home: the United States now ranks ninth internationally
in per capita public education expenditures, eleventh in per capita public health
expenditures, 21st in infant mortality, and 22nd in population per physician.
In short, the constructive possibilities for economic conversion -- and the dangers
of failing to take advantage of them -- have never been greater. But pursuing
these possibilities requires bolder initiatives, which we will never take unless
we halt the current slide into pessimism. The best first step in that direction
is to take a closer look at what is already happening.
A 1993 survey by the Center for Economic Conversion (CEC) indicated a nearly three-fold
increase in national conversion activity in the second half of 1993. This striking
expansion has been fostered by increasing government support and coordination
of resources and by collaborative projects at the community, regional, state,
and federal levels. Today, 28 military dependent states have significant levels
of activity. Even the heavily defense-dependent, holdout state of California finally
passed an effective conversion planning package. Clearinghouses and "one
stop shops" for information about conversion are an important part of the
new landscape. The federal government, for example, recently opened an Office
of Economic Conversion Information, offering an 800-number, printed materials,
workshops, and on-line computer access.
Still more significant are new partnerships for conversion emerging in defense-dependent
regions, with participation by business, universities, community organizations,
unions, and government. The need for such partnerships grows out of the basic
structure of the Cold War defense sector. The defense economy is not simply a
collection of separate firms. It is a complex economic world, largely segregated
from the commercial economy, with its own social networks and industrial culture.
Individual defense firms are components of a pyramidal structure of government
purchasers, prime contractors, and smaller subcontractors.
Conversion requires that firms break free from this structure. They cannot simply
make new goods with new technologies for new markets. Instead conversion often
requires establishing a different economic world featuring regional networks of
firms, and collaborative relationships among firms, government, and unions.
One of the most interesting teams doing innovative work along these lines is CALSTART
-- a southern California consortium of labor, universities, federal labs, aerospace
manufacturers, and other businesses. CALSTART's ambitious goal is to develop a
major new California industry, focused on pollution-reducing, advanced transportation
technologies, including key components for electric vehicles. Designed to address
economic dislocation -- and deteriorating air quality -- in the Los Angeles area,
it is a model of a regional economic revitalization project.
The project has already had some success, both because of initial government assistance
and because of its ability to coordinate existing regional resources. CALSTART
began with over $21 million in committed funding from 45 companies and organizations
and applied for an additional $6 million from the state of California and the
federal government -- support which had been earmarked for consortia of this type.
Because the California defense workers already have many of the skills needed
for the proposed activities, the consortium expects to be able to create 55,000
new jobs in the state by the year 2000. It is now hiring production workers, including
some International Association of Machinists members, for a machine shop to make
components for electric vehicles.
The pool of local resources is not confined to the skills of defense workers.
CALSTART's Los Angeles headquarters are located in an office and manufacturing
facility in Burbank on loan from Lockheed, which also serves as the site for a
business incubator for advanced transportation technologies. And a CALSTART office
has just opened in northern California, with the aim of establishing an electric
car plant at the transitioning Alameda Naval Base.
Maine's Economic Conversion Project is another novel public/private partnership.
The principal vehicle for the project is an Environmental Industries Initiative,
whose programs include a Targeted Industry Initiative in alternative energy and
transport modeled after California's CALSTART and an environmental clean-up skills
The Maine project is of particular interest because it combines conventional conversion
planning with a particular focus on environmentally sound, "sustainable"
growth, recognizing the enormous economic opportunity provided by shifting to
suitable environmental industries. According to Executive Director Susan Schweppe,
the environmental industry is the fourth-fastest growing industry group in the
country, so state business leaders are very receptive to this emphasis.
The Maine example also illustrates an important trend in the new politics of conversion.
Local and state projects are often advocated by citizen activists. The most successful
advocates, though, are not the pressure groups that make demands and then leave
all the details of policy to the state, but the activists who develop expertise
in planning and networking with a wide variety of constituencies and aim to "stay
at the table" -- to continue to have influence on and be included in conversion
planning once it is underway.
CALSTART and the Maine project are parts of a much wider universe of collaborative
conversion initiatives. CEC has identified 14 state or local level conversion
projects which, like the Maine initiative, have a "sustainable development"
emphasis, ten consortia for new business development, and 39 projects focused
on industry group conversion, with ten especially targeting manufacturing. In
addition, 36 state or local level projects are addressing the retraining, re-employment
and retention of the work force.
Such collaborative efforts are not confined to the private sector. The Los Alamos
and Livermore weapons labs are also busy publicizing their efforts to develop
partnerships with civilian business. And local citizens' groups are actively working
to promote formal conversion plans for the labs, assisted by expert economic advisors
As for military bases, some 100 around the country are in various stages of the
conversion planning process, with another round of closings expected in 1995.
In its survey of 97 bases that have already been shut down and completely converted
since 1961, the Office of Economic Adjustment (the Defense Department agency charged
with assisting base closure) found that 171,000 new jobs have more than replaced
the 87,557 Defense Department civilian jobs the bases used to provide.
But the special difficulties of the planning process for base conversion must
not be underestimated. Completing a conversion can take as long as ten years,
with serious local economic impact along the way. The problem of toxic clean-up
adds another layer of difficulty which was not a factor in reporting on base conversions
from earlier eras. It now appears that the best results are achieved when the
planning process starts early enough and all the stakeholders are represented
in the process (as is happening, for example, at the Mather and Norton Air Force
bases in California).
Alongside these more collaborative efforts at conversion, many individual defense
firms are also working to convert significant portions of their business to civilian
activities. The press seems to prefer covering shocking stories of massive layoffs,
but ingenious transitions are quietly proceeding all over the country. A May 1991
study by the Winbridge Group found that more than three-quarters of the senior
executives at 148 defense firms were planning commercialization over the next
five years. According to a 1992 report from the CEC, 77 defense dependent firms
were described in newspaper accounts to be already actively engaged in converting
or planning to convert defense technology, materials, or products into civilian
business opportunities. And in 1993, when the Clinton administration made about
$456 million available through the Technology Reinvestment Program to firms planning
"dual use" products and technologies, it received nearly 3,000 proposals.
One reason for all this churning is that many smaller suppliers for big firms
know that it is a case of convert or die. Subcontractors at the bottom of the
defense economy pyramid are highly dependent on big prime contractors. But those
big firms have been doing more themselves and reducing the level of subcontracting.
So the number of suppliers has dropped sharply, from a mid-1980s high of 120,000
to only 30,000 today. Moreover, with prospects of failure concentrating their
minds, firms have been making rapid adjustments. Despite the fact that new product
development can sometimes take as long as seven to ten years, 75% of the firms
that have studied commercialization possibilities have already started selling
There are, in fact, many new civilian, environmentally-sustainable technologies
suitable for conversion efforts, including communications technology, pollution
monitoring or remediation devices and activities, alternative transport, new light
composite materials and manufacturing processes, some of the "smart highways"
proposals such as transit and vehicle identification, and alternative energy devices
and civilian shipbuilding initiatives. The special importance of these new areas
of opportunity is their potential to create new markets.
Westinghouse, for example, now supplies radar surveillance systems for a variety
of civilian activities including aviation, drug interdiction, transportation management
in long-haul trucking and metro transit, security systems, and law enforcement.
Northrop is studying civilian markets for gyroscopes in cars and non-ozone depleting
chemical cleaning equipment; Hughes has a new commercial software package; Kaman,
a veteran at conversion, has recently begun to produce parts for GE engines and
Boeing jets, and to develop a new civilian "aerial truck" helicopter
for logging, fire fighting, and powerline work; and Science Applications International
Corp. has modified its military technology to medical-imaging technique and research.
Some firms are taking the idea of innovative products for new markets especially
seriously. The Sacramento-based Aeroject is retooling from rocket fuel to "frozen
smoke," an ultra-light insulation material. EDO Corporation of New York is
using its durable, lightweight composite materials to make graphite bicycle spokes.
And then there is the newly patented Mobot, a missile-inspired, self-guiding lawnmower.
The story of conversion is not simply a record of separate firms and partnerships,
each pursuing its own path. There are common threads, emerging patterns, and a
potential for learning. Spectra Enterprise Associates, a venture capital fund,
has helped 14 defense-oriented companies to find new business opportunities through
conversion. Spectra's experience suggests some important lessons for addressing
the handicaps defense firms face in learning how to make goods that sell after
a lifetime of federal largesse. The first lesson is that the biggest obstacle
to conversion is not on the engineering side but the business side. Although defense
engineers have had little experience making products for markets, Spectra found
that they could learn it quickly with the right management leadership and reasonably
transferable technology. Defense industry executives at the giant defense firms,
by contrast, may take no interest in conversion and prefer to engage in a battle
to the death for whatever military business is available, rather than trying to
learn how to do business in a civilian, market-oriented manner. This is why Spectra
often brings in new top management when it begins work with a company.
A related lesson is that successful conversion requires management that can let
go of conventional military planning practices such as concurrency -- the practice
of designing and testing at the same time, instead of designing, testing, and
redesigning. The efforts by Boeing-Vertol to convert from military aircraft to
light rail cars in the 1970s, for example, failed in part because of an unwillingness
to let go of military management procedures.
A third factor is the importance of stability in federal funding and uniform standards
for products. Boeing-Vertol suffered, too, from the negative effects of inconsistent
government support and regulation.
A final ingredient, especially for smaller firms, is patient capital. Firms must
identify an alternative product, test the market for it, design it, change their
manufacturing process, and then market their product. This all takes time. And
that means lenders, whether public or private, who are prepared to wait for a
return. One of the most fundamental obstacles to successful conversion of any
kind is an expectation that it will happen overnight, coupled with a rush to premature
judgment of failure if the process takes longer than expected.
Are Defense Workers Getting Left Behind?
Conversion, of course, is not simply about novel partnerships and innovative firms;
it is about employment. Ideally, successful conversion of a defense firm should
ensure new employment for the workers. Frequently, firms get out of the defense
business by laying off defense workers and buying civilian firms to form new divisions.
This is different from the process by which firms convert some or all of their
capacity, reducing or entirely eliminating their defense dependency. Many of the
most successful cases of conversion have come from direct involvement of shop
floor workers in the planning process. Frisby Airborne Hydraulics is the classic
example of a successful effort to involve employees in the process by using worker
planning teams and profit sharing plans. Emphasizing the importance of this process,
unions in the defense industry are urging the formation of "alternative use
But the overall record of involving labor in the process is poor, which probably
accounts for quite a few failures to convert. Labor groups working at Unisys in
Minnesota, for example, have been able to identify 12 alternative products since
1989, including such items as computerized irrigation devices, low power electric
ballasts, and equipment for handicapped persons. After years of stonewalling the
labor group's ideas, Unisys has finally promised to discuss this subject. But
a recent study by economist Ann Markusen and her team of researchers found that
Unisys has already decided to build one of the products suggested, a satellite-based
remote sensing system, but in their Salt Lake City plant.
Another example of an ignored labor conversion alternative comes from Electric
Boat. A Connecticut-based firm, Electric Boat continues to make the controversial
Sea Wolf submarine because of a decision by the Clinton administration aimed at
winning the support of Connecticut voters. A union official there notes that the
company could make deep submersible research vessels for farming the ocean floor,
deep sea mining, and energy resource identification, if federal funding were available
and the company leadership willing. But because of the new Sea Wolf contract,
the company recently returned millions of dollars of conversion support from Connecticut
and Rhode Island, and now refuses to consider any conversion ideas.
The truth is that while some companies are moving briskly ahead with conversion,
many American defense workers have become casualties of the approach to conversion
taken by the federal government and individual firms. Estimates vary, but most
sources agree that over the period 1991-95 about a million civilian military workers
of all types will be displaced, along with about 360,000 uniformed personnel.
Some experts predict that the number of lost jobs in military serving companies
and in the armed services could nearly double by 2001. Counting the so-called
"multiplier effect" of civilian jobs created in military serving communities
by military workers as consumers, John Tepper Marlin estimates that the total
job loss over this five year period could be as much as two million.
Because US civilian manufacturing jobs have also been vanishing, it is not easy
to find alternatives to low-paying service jobs for highly skilled former defense
workers. So-called job training without real jobs at the end of the process is
a naive or cynical solution to the serious employment problems created by military
cutbacks. Many defense workers already have transferable skills and just need
solid new work opportunities. The same can be said for regular military personnel
who are being separated in the Defense Department's own downsizing process.
Needed: A Federal Conversion Policy
All the evidence about the right kind of federal policy points in one direction
-- the separate efforts of individual firms and regions need support from a national
technology policy with goals matched to people's real interests, served by a vigorous
civilian job stimulus program. But we are not getting it. The Clinton Administration's
conversion policy has focused thus far on some high technology grants and limited
community- or worker-adjustment assistance. And the lion's share of the technology
funding has been devoted to technologies with both military and civilian applications
-- the "dual use" approach of the Technology Reinvestment Program (TRP).
In a recent analysis of TRP, Michael Oden of the Project on Regional and Industrial
Economics (PRIE) argues that "reliance on dual use criteria raises serious
questions about who should decide which technologies and companies are critical
for the nation's real security. For instance, technologies for mass transportation
and for improving energy efficiency missed the TRP list of 28 critical technologies."
More fundamentally, the TRP "dual use" program is based on the flawed
assumption that products can be simultaneously designed for civilian and military
uses. There have of course been some famous military "spin-offs," like
teflon. But such spin-offs are typically due to inadvertence, and they take a
long time to emerge. Consumers do not need and will not pay for coffee pots that
can be dropped from a plane at high altitudes and still produce a nice cup of
A recent PRIE study of defense contractors and applicants for TRP funding underscores
the troubles of the dual use approach to conversion. As the Spectra experience
indicates, defense conversion does not require the kind of assistance provided
by TRP grants. Instead, they principally need to learn how to meet the demands
of civilian markets. That means access to venture capital, market expertise,
and management retraining. The federal government could help in these areas with
loan funds, management and technical assistance, and stimulus for start-ups and
innovative experiments by workers from defense firms, as well as extensive retraining.
In addition, direct federal and state purchase of new products could help jump-start
a bigger market for conversion.
Beyond these efforts, conversion advocates are also pressing for federal incentives
for defense firms to do advance planning by means of tax credits and preferential
treatment in Defense Department contract awards for worker retention measures,
as well as connecting laid-off workers to new job opportunities. The latter would
mean public investment in such public benefit areas as infrastructure repair and
replacement, energy efficiency, and mass transit.
PRIE Executive Director Ann Markusen recommends an even more ambitious approach
to conversion which would benefit not only displaced defense workers but out of
work employees from all sectors. She calls for a civilian "industrial strategy
for human needs" that would create new jobs by reinvesting the peace dividend
in socially and environmentally constructive activities, instead of just pouring
it into deficit reduction (which has not been proven to create massive numbers
of new jobs). Representative Lynn Woolsey (D-CA) has recently introduced a Displaced
Workers Retraining Act that would begin to move policy in this direction.
Communities also need more and better quality assistance, because much of the
actual work of converting happens at that level; handled well, conversion can
be a powerful vehicle for revitalizing local and regional economies. Many more
regional consortia like CALSTART, combining the interests and talents of business,
labor, and community leaders for true conversion projects, should be fostered
as well. And as in the case of CALSTART, the federal government can play a creative
role by acting to facilitate such new economic alliances.
The need for such policies is increasingly urgent, for political as well as economic
reasons. Unless conversion receives the kind of funding and regulatory support
it desperately needs in the next few years, the combination of tirelessly reiterated
myths about conversion failure in firms, with the impact of real pain among workers
and communities, could lead to a political backlash that would serve the interests
of those who wish to see the military budget remain high. Military spending is
not a national economic program. It is not the most effective way to create jobs,
build communities, promote national prosperity, or reduce the trade deficit. It
is always, in the end, about destruction. But conversion is hard work, requiring
real economic reconstruction. The illusion that military spending creates prosperity
will continue to have popular resonance, as long as there is no serious alternative
on the table with real political support. And the result of that illusion could
be a descent into ever greater misery fueled by an ever-growing, useless, wasteful,
and dangerous global arms race. Serious planning for comprehensive conversion
is the key to our escape from this nightmare.
Bertelli, Dominick, "Contractor Conversion in the U.S.," Council on
Economic Priorities, New York, 1993. Cassidy, Kevin J., and Bischak, Gregory A.,
ed., Real Security, SUNY, 1993. Markusen, Ann, and Yudken, Joel, Dismantling
the Cold War Economy, Basic Books, 1992. Marlin, John Tepper, "Military Conversion,"
in Changing America, Mark Green, ed., New Market Press, New York, 1992.
Originally published in the April/May 1994
issue of Boston Review