Report from Iron Mountain Section 2: from Educate Yourself

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. Back to Contents