SECTION 2
Disarmament and the Economy
In this section we shall briefly examine some of the common features
of the studies that have been published dealing with one or another
aspect of the expected impact of disarmament on the American economy.
Whether disarmament is considered as a by-product of peace
or as its precondition, its effect on the national economy will in
either case be the most immediately felt of its consequences. The
quasi- measurable quality of economic manifestations has given rise
to more detailed speculation in this area than in any other.
General agreement prevails with respect to the more important
economic problems that general disarmament would raise. A short
survey of these problems, rather than a detailed critique of their
comparative significance, is sufficient for our purposes in this
Report.
The first factor is that of size. The "world war industry," as one
writer [7] has aptly called it, accounts for approximately a tenth
of the output of the world’s total economy. Although this figure is
subject to fluctuation, the causes of which are themselves subject
to regional variation, it tends to hold fairly steady.
The United
States, as the world’s richest nation, not only accounts for the
largest single share of this expense, currently upward of $60
billion a year, but also,
"... has devoted a higher proportion
[emphasis added] of its gross national product to its military
establishment than any other major free world nation. This was true
even before our increased expenditures in Southeast Asia." [8]
Plans
for economic conversion that minimize the economic magnitude of the
problem do so only by rationalizing, however persuasively, the
maintenance of a substantial residual military budget under some
euphemized classification.
Conversion of military expenditures to other purposes entails a
number of difficulties. The most serious stems from the degree of
high specialization that characterizes modern war production, best
exemplified in nuclear and missile technology. This constituted no
fundamental problem after World War II, nor did the question of
free-market consumer demand for "conventional" items of consumption
- those goods and service consumers had already been conditioned to
require. Today’s situation is qualitatively different in both
respects.
This inflexibility is geographical and occupational, as well as
industrial, a fact which has led most analysts of the economic
impact of disarmament to focus their attention on phased plans for
the relocation of war industry personnel and capital installations
as much as on proposals for developing new patterns of consumption.
One serious flaw common to such plans is the kind called in the
natural sciences the "macroscopic error." An implicit presumption is
made that a total national plan for conversion differs from a
community program to cope with the shutting down of a "defense
facility" only in degree. We find no reason to believe that this is
the case, nor that a general enlargement of such local programs,
however well thought out in terms of housing, occupational
retraining, and the like, can be applied on a national scale.
A
national economy can absorb almost any number of subsidiary
reorganizations within its total limits, providing there is no basic
change in its own structure. General disarmament, which would
require such basic changes, lends itself to no valid smaller-scale
analogy.
Even more questionable are the models proposed for the retraining of
labor for nonarmaments occupation. Putting aside for the moment the
unsolved questions dealing with the nature of new distribution
patterns - retraining for what? - the increasingly specialized job
skills associated with war industry production are further
depreciated by the accelerating inroads of the industrial techniques
loosely described as "automation."
It is not too much to say that
general disarmament would require the scrapping of a critical
proportion of the most highly developed occupational specialties in
the economy. The political difficulties inherent in such an
"adjustment" would make the outcries resulting from the closing of a
few obsolete military and naval installations in 1964 sound like a
whisper.
In general, discussion of the problems of conversion have been
characterized by an unwillingness to recognize its special quality.
This is best exemplified by the 1965 report of the Ackley Committee.
[9]
One critic has tellingly pointed out that it blindly assumes
that,
"... nothing in the arms economy - neither its size, nor its
geographical concentration, nor its highly specialized nature, nor
the peculiarities of its market, nor the special nature of much of
its labor force - endows it with any uniqueness when the necessary
time of adjustment comes." [10]
Let us assume, however, despite the lack of evidence that a viable
program for conversion can be developed in the framework of the
existing economy, that the problems noted above can be solved.
What
proposals have been offered for utilizing the productive
capabilities that disarmament would presumably release?
The most commonly held theory is simply that general economic
reinvestment would absorb the greater part of these capabilities.
Even though it is now largely taken for granted (and even by today’s
equivalent of traditional laissez-faire economists) that
unprecedented government assistance (and concomitant government
control) will be needed to solve the "structural" problems of
transition, a general attitude of confidence prevails that new
consumption patterns will take up the slack. What is less clear is
the nature of these patterns.
One school of economists has it that these patterns will develop on
their own. It envisages the equivalent of the arms budget being
returned, under careful control, to the consumer, in the form of tax
cuts. Another, recognizing the undeniable need for increased
"consumption" in what is generally considered the public sector of
the economy, stresses vastly increased government spending in such
areas of national concern as health, education, mass transportation,
low-cost housing, water supply, control of the physical environment,
and, stated generally, "poverty."
The mechanisms proposed for controlling the transition to an
arms-free economy are also traditional - changes in both sides of
the federal budget, manipulation of interest rates, etc. We
acknowledge the undeniable value of fiscal tools in a normal
cyclical economy, where they provide leverage to accelerate or brake
an existing trend.
Their more committed proponents, however, tend to
lose sight of the fact that there is a limit to the power of these
devices to influence fundamental economic forces. They can provide
new incentives in the economy, but they cannot in themselves
transform the production of a billion dollars’ worth of missiles a
year to the equivalent in food, clothing, prefabricated houses, or
television sets. At bottom, they reflect the economy; they do not
motivate it.
More sophisticated, and less sanguine analysts contemplate the
diversion of the arms budget to a nonmilitary system equally remote
from the market economy.
What the "pyramid-builders" frequently
suggest is the expansion of space-research programs to the dollar
level of current armaments expenditures. This approach has the
superficial merit of reducing the size of the problem of
transferability of resources, but introduces other difficulties,
which we will take up in section 6.
Without singling out any one of the several major studies of the
expected impact of disarmament on the economy for special criticism,
we can summarize our objections to them in general terms as follows:
-
No proposed program for economic conversion to disarmament
sufficiently takes into account the unique magnitude of the required
adjustments it would entail.
-
Proposals to transform arms production into a beneficent scheme of
public works are more the products of wishful thinking than of
realistic understanding of the limits of our existing economic
system.
-
Fiscal and monetary measures are inadequate as controls for the
process of transition to an arms-free economy.
-
Insufficient attention has been paid to the political acceptability
of the objectives of the proposed conversion models, as well as of
the political means to be employed in effectuating a transition.
-
No serious consideration has been given, in any proposed conversion
plan, to the fundamental nonmilitary function of war and armaments
in modern society, nor has any explicit attempt been made to devise
a viable substitute for it. This criticism will be developed in
sections 5 and 6.
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