THE LOCKHEED-MARTIN MERGER : The Strongest Signal Yet That Defense Still Lives by the Sword
So much for that projected bull market in high-tech plowshares. The proposed $10-billion merger between Lockheed and Martin Marietta offers the sharpest signal yet that the nation’s top defense contractors don’t care to convert. They’ll stick to their swords, thank you very much.
Far from converting to the false profits of commercialism, the industry has become an even more devout group of defense fundamentalists. Defense technology is about weaponry, war and national security--not turning military microwaves into medicine or new materials into prefabricated housing. The guiding principle of today’s defense marketplace is greater consolidation, not innovative conversion. The economic risk of beating their swords into salable plowshares has proven too speculative, too great.
Past “attempts at defense conversion are largely unblemished by success,” Martin Marietta’s chief, Norman Augustine, commented just last month. “I’m not the least bit optimistic about the future success of the defense industry moving far afield from the things it does best. Just as you wouldn’t expect the world’s foremost maker of toothpaste to be able to put a man on the moon, why should we expect companies that put spacecraft on the moon to be able to sell toothpaste?”
Consequently, the belief that the end of the Cold War would see America’s enormous defense establishment make the wrenching transition from Pentagon dependence to competition in the civilian marketplace is demonstrably wrong. There’s a wrenching transition, all right, but it has nothing to do with the pursuit of innovation. Defense conversion of any size, scale or scope simply isn’t happening.
Defense contraction hasn’t been leading to new products, new markets or new industries, but rather to ever-rising rates of unemployment. The genuine hope that defense conversion would be a powerful engine of economic development and growth has proven to be a disappointing delusion. Therefore, the nation needs to find new strategies for absorbing hundreds of thousands of former defense workers into the economy.
When a Lockheed agrees to merge with a Martin Marietta for $10 billion, the marketplace is being told in the strongest possible terms that dollars invested in the defense industry will yield higher returns than dollars invested in diversification.
“I’m not so sure it’s a bad thing for defense companies to focus on the things they can do well,” says Dan Burton, executive director of the Council on Competitiveness, a Washington-based policy group that lobbies on industrial productivity issues. “They should compete where they have a comparative advantage and hold to their assets and resources rather than try to diversify into things that are a stretch.”
“We’ve done some surveys about obstacles to defense conversion,” reports the Pentagon’s Ken Flamm, special assistant to the deputy secretary for dual use technology policy, “and the No. 1 obstacle is not capital and it’s not skills--it’s knowing about the marketplace, it’s knowing information. Of course, within that there’s a cultural component as well.”
The unfortunate reality, however, is that it now seems wildly unrealistic and optimistic to believe that defense contractor conversion will have a meaningful impact on soaking up those employees made redundant by the near 50% drop in defense procurement since 1987.
High-tech defense spinoffs and tech transfer initiatives like the Technology Reinvestment Program, while noble, seem incapable of doing much to fill the employment gap.
What’s worse is that the honest assessments of the Labor Department and other agencies have overwhelmingly concluded that traditional retraining programs to help place skilled defense workers just don’t work. In essence, the institutional and market mechanisms we hoped would ease the pain of economic transformation are failing us.
Individual--not institutional--responses to defense conversion dislocation need to be explored. Perhaps it’s too early to call for a “DC Bill” in the aftermath of the Cold War in the same way there was a GI Bill after World War II. But there should be little question that government needs policies that facilitate the economic transition. Clearly, the defense conversion that matters will not happen company by company, but individual by individual.
“One idea which has been seriously discussed has been to pay out unemployment benefits as a lump sum rather than just on a monthly basis,” says the Pentagon’s Flamm. “That should give people more flexibility in how to invest their resources. . . . That’s currently being explored within the Administration, and I think that idea has some merit.”
Similarly, rather than set up massive retraining infrastructures, the Administration might propose making tuition and fees deductible for defense workers who choose to go to an accredited institution for education or training. To make it easier to pursue new job opportunities in other parts of the country, certain defense workers could be entitled to, say, a $2,000 deductible on their moving expenses. Again, the choices are left up to individuals, not institutions.
The essential issue here is not that defense contractors should be compelled to invest in commercial products or that the government is obligated to find jobs for everyone thrown out of work as the military-industrial complex continues to shrink. Rather, it’s that it is simply good public policy to make it easier for individuals to take the initiative if their institutions can’t or won’t.
