Economic Conversion: A Call to Phase Out the Swords
The irony of the swap did not escape Marion Pack, executive director of Alliance for Survival.
Since 1984, the Westin South Coast Plaza Hotel has been home to Orange County’s annual defense technology expo, a conference of Pentagon representatives and defense contractors called Wincon (Winter Conference on Aerospace and Electronic Systems).
But this year, Wincon was canceled, and Alliance for Survival stepped in to fill the void, do the hotel a good turn and prove a point at the same time.
The point? That industry based on defense can convert to peaceful production--a tough message to stump in a place like Orange County, whose aerospace industry won more than $3 billion in defense contracts in 1986 and whose major employer is the Hughes Aircraft Ground Systems Group in Fullerton.
The good turn? To hold an “economic conversion” conference at the Westin in place of the weapons expo. So on Saturday morning, a cadre of economists for peace and other interested observers trooped into the Westin to talk about peaceful production.
“We wanted to tell the Westin that ‘you don’t have Wincon, but we’re here, so peace is prosperous,’ ” said Pack, who helped organize the convention.
Simply put, economic conversion “involves the orderly redirection of resources from the military economy to socially useful economic activity,” according to literature from the Silicon Valley-based Center for Economic Conversion. “This includes . . . transforming defense plants and military facilities to civilian uses.”
A decade ago, such a proposition sounded about as possible as a U.S.-Soviet disarmament treaty. But today, with an arms treaty on the horizon and a declining defense budget, conversionists are sounding the alarm. They contend that there are powerful economic reasons for switching to civilian production, as well as strong moral incentives.
“We have changed from a twitch into a movement,” said Michael Closson, executive director of the Center for Economic Conversion. “We have really been growing in the past couple of years. It was hard when the Reagan Administration defense buildup was going on. Now, though, it’s clear that we have to moderate our appetite for military spending.”
And the conversionists aren’t the only ones grappling with the intertwined issues of defense and the economy. There is a broad spectrum of thought on just how to cope with the potential for defense plant closures, ranging from “economic adjustment” espoused by the Pentagon, through diversification of a company’s manufacturing base and all the way over to true conversion.
Consider the American Electronics Assn., which has seen the looming problems and taken the stand that diversification is necessary for the health of the electronics industry. In a recent position paper on “Strategies for Innovation,” the organization espoused the following:
- “National security depends on more than military strength alone. We also need a strong economy to fund defense spending and to promote our influence and leadership around the world.”
- “We cannot allocate 70% of federally funded R & D (research and development) to defense and severely limit U.S. high-technology exports even in West-West trade without paying a very significant price in terms of competitive strength.”
- “We cannot siphon off a disproportionate share of our scarce technical resources to military applications and still stay ahead of Japan in commercial markets.”
These are concerns of great import for California--the nation’s leader in prime contracts from the Defense Department--and Orange County, No. 3 in the state behind Los Angeles and Santa Clara counties for that very funding. California gets an annual $28 billion in defense contracts, of which Orange County’s share is nearly 9%, or $3.2 billion, according to Closson’s center, which monitors defense spending.
Although he is a vocal opponent of economic conversion as espoused by the likes of Closson, John Lynch, associate director of economic adjustment for the Defense Department, does say that defense spending is on the wane and some communities will have to make a transition away from a defense foundation.
“At the height of the Reagan buildup, we were spending 6.3% of the GNP (gross national product) on defense and military,” Lynch said. “At the height of the Vietnam War we were spending 8.8%. At the present time, the amount we’re spending is about 5.7% of the GNP.”
Orange County’s most stunning defense-related layoff in recent years happened in 1985, when Ford Aerospace in Newport Beach was notified that the Army was scrapping the controversial tank-mounted Sgt. York gun at the cost of nearly 2,000 jobs. In April, Rockwell International announced that it would close its Collins Defense Communications facilities in Santa Ana in September, eliminating 534 jobs, in an effort to consolidate and reduce costs.
But Lynch’s answer to such job casualties is a far cry from the views espoused by the likes of Closson and Seymour Melman, a Columbia University professor of industrial engineering and father of the modern conversion movement.
Just like the name of his office, Lynch believes in “economic adjustment,” the process whereby a community that loses its livelihood when a defense plant closes attracts new industry, creates new jobs, but does not convert the phased-out company over to peacetime production.
Economic adjustment “does not try to get an existing organization to start a whole new product,” said Lynch, who is in the process of helping Palmdale survive the phase-out of the B-1 bomber. “Organizations are incredibly inflexible. They do not go into whole new fields. Economic conversion in summary is a splendid theory that has only one problem: It doesn’t work.”
No Evidence
A recent Pentagon study of economic conversion asked 12 of the leading conversion advocates to name any product made today developed through the conversion process. Lynch said the study unearthed nothing.
Conversion “was tried several times during the 1970s by Rohr, Sikorsky, Boeing-Vertol, McDonnell Douglas,” Lynch said. “There are a notable number of major failures. None of those efforts at economic conversion worked.”
Which is just Melman’s point. Melman first wrote of economic conversion in his 1975 book “The Permanent War Economy.” A 1983 tome entitled “Profits Without Production” used Boeing-Vertol as an example of the need for an economic conversion that includes comprehensive retraining of staff, changing of the management process and modifying the physical factory.
Boeing-Vertol of Pennsylvania hit its production peak early in the Vietnam War, when its 13,500 employees were building helicopters for the military. In 1971, the company decided to diversify and set out to design and produce electric trolley and subway cars, in part for the Massachusetts Bay Transportation Authority.
But the transit line had real troubles with the Boeing-Vertol trolleys. In the first 18 months of operation, there were more than 100 derailments, 40 trolleys were never delivered and many were damaged and returned.
What went wrong? “They just couldn’t make it,” Melman said in a telephone interview. “What came out was unreliable, high-priced, hopeless. The reason is that they failed to convert, where converting meant retraining the managers and engineers to ways of working that are essential for civilian industry.”
According to Melman, Boeing-Vertol “carried on with the ways of working that went over nicely with the Pentagon,” where high cost, high maintenance and unreliable equipment is commonplace.
The military procurement process allows a level of “unreliability” in products that requires extensive care, maintenance and expense, he said. “That’s all right, that’s ordinary. It’s the condition of our sophisticated fighter planes.”
Melman has addressed Congress on the issue of conversion, and has aided in the writing of House Resolution 813, the Defense Economic Adjustment Act introduced by Rep. Ted Weiss (D-NY). Although it will not come to a vote for about another year, it currently has 59 sponsors, of which more than 25% are California legislators.
The act gives a basic outline of how conversion would come about and includes the following provisions: one-year pre-notification of plans to cut back or terminate a defense contract or military base; ongoing alternative-use committees in military-related facilities to develop detailed conversion plans; and planning assistance, income support and retraining programs for communities and workers while a conversion is under way.
Although the conversion legislation is fairly simple, Les Arnold, president of a Camarillo electronics firm, says the concept is more difficult to implement--even for the most ardent believer.
Arnold is president of Arnold Magnetics of Camarillo, and he was on the program at Alliance for Survival’s Saturday conversion conference. His 32-year-old family business is highly dependent on military contracts, with between 50% and 70% of its business coming from the Defense Department, Arnold said.
But last spring, the 35-year-old Arnold decided that he had to change the company. He had been at the firm’s helm for 12 years. He had fought in Vietnam, seen the defense budget begin to dwindle and reached the conclusion that defense production is not good for his company or “the future outcome of the planet.”
“Here I am,” he said in an interview, “a person with the desire to convert--not only business-wise, but morally. I’m a young guy and I’m struggling with this conversion issue. So many people believe the thing to do is to quit your defense job and make a personal statement.”
Instead, Arnold decided to make a professional statement. In the spring of 1987, he did a marketing survey to see if the electronic power supplies he manufactures for defense work can be used in other fashions or modified to find new niches.
He explored environmental markets, air and water measurement instrumentation, oceanographic exploration and cleanup, alternative energy development. He looked into expanding the existing, non-military markets that his products served.
“I was pretty disappointed by the results,” he said. “Contrary to what I felt in my mind, I saw that the (civilian) marketplace for high-technology power supplies was extremely small compared to the defense market.”
Arnold has not yet given up his conversion dream, but he is not quite sure where he will navigate his 100-employee firm. One option is to brave the Defense Department’s uncertain future, and hold his current course. Another is to develop entirely new products and streamline Arnold Magnetics for the future.
“I’m considering it,” he said. “But I don’t see a real simple, easy path.”
