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Swords to Plowshares: But Are We Dreaming? : Economy: Some weapon-makers will fail the consumer test. Others possess engineering sophistication required for civilian projects.

<i> Simon Ramo, co-founder of TRW Inc., was the chief scientist in developing the nation's intercontinental ballistic missile system</i>

Most Americans believe that external threats to the nation’s security have greatly diminished. They thus expect major reductions in military spending. With half the nation’s technology assets--engineers, scientists, research-and-development laboratories and manufacturing facilities--directly or indirectly devoted to making weapons, a drop in defense requirements could release enormous resources for development of new civilian technological products.

Neither the White House nor Congress, however, is likely to push for quick and massive defense cuts before reshaping national-security policy to reflect a post-Cold War world. Such planning is most difficult and, as always, will proceed slowly. The Soviet Union still possesses tens of thousands of nuclear weapons and the capability of delivering them to targets in the United States. Short of a total, worldwide ban on such arms, we are not safe from nuclear warfare.

This and numerous uncertainties about the course of post-communist Eastern Europe will reinforce the strong resistance of the “political-military-industrial complex” to any precipitous reductions in defense spending. (Strangely, the word political is usually omitted.) No senator or representative will rush to cancel a military contract or close a military base when jobs in his state are at stake. Indeed, many politicians will see more danger in the unemployment that results from drastic drops in defense spending than in continuing to fund out-of-date, overblown programs.

What does all this mean to the country’s defense businesses? Most companies will not meet with sudden death, because the defense budget will not fall more than a few percent a year in the near future. But as we enter the next century, the U.S. defense industry will exhibit some new characteristics:

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The Soviet Union, as the enemy that determines the size of our defense budget, will be down-rated. Proposals to build new military weapons will be judged by how much money they save in a less threatening world. No longer will the general expectancy that the Soviets will outdo us and thereby place our security in jeopardy drive weapons procurement.

The massive defense buildup in the ‘80s gave rise to a pattern of producing weapons before they were fully developed and tested. Early capability was deemed more important than minimizing costs. In the future, the R&D; phase will have to be complete and the system proven before production. Fixed procurement prices and guaranteed performance and completion dates will thus become more meaningful. Accordingly, the Pentagon can wind down its micromanagement of contractors, a magnifier of weapons costs. It can also accept commercially available components rather than expensive ones that must conform to rigid military standards.

Which will be the warring nations in the emerging defense environment? What will their objectives be? In what kind of military confrontations is the United States likely to be involved? Since the answers will remain extremely unclear for years, we will need to be able to respond with great flexibility. We will require broad, ready knowledge of how science and technology can back this up. Possessing a stockpile of effective and proved technology will become as important as the maintenance of powerful military forces was in the past.

“Adequacy” will win over “more is better.” We now possess a wide array of means to drop nuclear bombs on enemy targets. The same multiplicity applies to many other military systems. The more constrained military budget of the future will force a lessening of this profusion.

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The probability of an all-out nuclear strike on the United States by the Soviet Union will come to be seen as low. A modest attack could result, however, from an accidental launch or from an act by a terrorist nation. To thwart a (limited) nuclear offensive strike from whatever source, an installed defense system will be regarded as vital even as it becomes technically feasible and economically affordable.

To ensure a feeling of safety in a puzzling and precarious world, Americans will continue to tolerate substantial military spending but will insist that it be greatly reduced during the next 10 years to, say, two-thirds of 1990 expenditures. The biggest cuts will involve uniformed personnel and their direct support. The country’s capacity to manufacture aircraft, ships, electronics and missilery has grown too high and will have to shrink.

The profile of the high-technology sector of the industry, however, will not be reduced as much as it will change. With pressure on the Pentagon to lower fighting manpower, interest in robotics and related new technologies to defend, seize and control land, sea, air and space will rise.

What, then, should a defense company do?

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First, it should ask itself if it is a supplier of mundane equipment (fuselages, missile casings, pumps, nuts and bolts, etc.); a producer of overly expensive and marginally required systems or an originator of frontier technology.

Suppliers, in anticipation of lower revenues, should scale down or merge with others. Producers of marginal systems should expect project cancellations, either immediately or down the road. But companies working on frontier technology--computer-based information systems for intelligence, reconnaissance, communication, command and control, for example--should prepare for growing R&D; opportunities even as they cut their manufacturing facilities.

Can defense companies shift to civilian products? Some, of course, are such poor performers that nothing will save them once overcapacity hits the industry. But, overall, can the defense industry successfully diversify?

The usual answer is that makers of military equipment fail when they go commercial. They are high-cost operators producing low volumes of expensive items; they are accustomed to single-source contracts. As such, these companies are unprepared for consumer and industrial competition.

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To be sure, there is some truth to these generalizations. There is an enormous difference between making and selling a TV set for the home and making and selling a military command-and-control project. Few companies employing designers of military systems would be so foolish as to reassign them to create electronics products for the mass consumer market. In any case, they don’t have to, because their defense business will continue indefinitely.

Billions of dollars are going to be spent, moreover, by industry and government on modern information systems to run their civilian operations more efficiently. The Internal Revenue Service, Census Bureau, Department of Commerce, commercial airlines, banks, manufacturing companies, law firms, hospitals and so on--all need improved, integrated information handling to meet their growing requirements for cost-reduction, higher productivity and optimum control of operations. The engineering sophistication required for such projects is similar to that being applied to military command-and-control systems. Accordingly, defense engineers need take only a relatively small diversification step to be fully prepared for such civilian tasks.

If, as the world changes, America can achieve adequate security with less of a commitment of its limited resources to defense, so much the better. Maybe now we will be able to mount superior efforts in non-defense areas. Many novel, cost-effective civilian technologies are going undeveloped. The cost of capital is critical here, and that cost is affected by government budgeting, which includes defense spending.

If lower defense spending helps to lower the budget deficit and thereby decrease the cost of capital, this will encourage private investment. The United States might enter an era of unprecedented economic expansion based on fuller use of advances in technology.

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