Saturday, November 10, 2007

the trouble with war economies is that they require killing

An 'historical' article from the NYTimes highlighting the problem from the contractors' point of view. Of course it would now appear the problem has been solved as they have been busy plunging the planet into darkness:
 
4 October, 1992
 

Arms Makers' Latest Tune: 'Over There, Over There'

Hurt by dwindling Pentagon orders, United States military contractors are relying more heavily than ever on foreign sales.

The value of agreements to sell arms to foreign countries has nearly quadrupled in five years to $24.1 billion already this year, from $6.5 billion in all of 1987, according to the Pentagon. Foreign orders should account for at least 25 percent of American arms production in the next few years, up from about 15 percent now, industry officials say.

To some extent, the overseas orders this year are wrapped up in Presidential politics: Most sales of American-made arms must be approved by Washington, and the President's authorization of such sales can translate into votes in communities where factory jobs were saved. In the last month, President Bush rejected protests from Israel and its supporters by approving the sale of 72 McDonnell-Douglas F-15 fighters to Saudi Arabia, saving some 7,000 aerospace jobs in St. Louis. He also reversed a 10-year-old limit on sales of advanced weaponry to Taiwan by clearing the sale of 150 General Dynamics F-16 fighters, saving 3,000 jobs in Fort Worth.

Gov. Bill Clinton, the Democratic Presidential nominee, also supported the Saudi and Taiwan sales, largely because of the economic benefits.

Industry officials say that with no rebound in sight for shrinking American military budgets, overseas orders will help pick up the slack for companies converting to commercial work or repositioning themselves in the leaner military arena. They also argue that the increased volume that results from sales to foreign customers allows weapons makers to charge the Pentagon less for each unit.

But arms-control groups and several members of Congress decry this trend, contending that arms proliferation, particularly in the Middle East, will escalate political tensions. There has recently been a stampede of Western arms merchants seeking to sate the growing appetite of Persian Gulf countries for arms.

A study issued last week by the Congressional Budget Office argued that limiting arms sales to the Middle East might permit reductions in American military spending. The office reasoned that if Middle East countries were less armed, the United States would not have to involve as many Americans in a Middle East war. "It is shortsighted to stimulate the arms race for the purpose of redressing economic problems in the United States," said Representative Dante B. Fascell, a Florida Democrat who heads the House Foreign Affairs Committee.

But Jeffrey E. Garten, an investment banker and author of "A Cold Peace: America, Japan, Germany and the Struggle for Supremacy," thinks that "we're unlikely to sacrifice economic interests to take the moral high ground on curbing arms sales."

Why military contractors are looking overseas comes down to simple math:

* Saudi Arabia will buy seven times as many General Dynamics M1-A2 battle tanks as the United States Army in the next five years. The United Arab Emirates, Kuwait and Sweden are also shopping for tanks.

* After 1993, McDonnell-Douglas will sell two of its top three combat aircraft -- the F-15 and the AV-8B Harrier -- only to foreign customers, as United States Air Force and Navy orders wind down. Foreign orders to the McDonnell-Douglas Corporation's aircraft division will probably rise to about 33 percent of sales in the next few years from 20 percent now, said George Hibbard, director of international business development.

* More than 20 percent of Raytheon's sales this year are expected to come from Patriot missiles, mainly to countries like Saudi Arabia, Turkey, South Korea and Israel.

"In the short run, exports are going to be imperative to keep defense lines open and keep a warm industrial base in place," said Joel L. Johnson, international vice president of the Aerospace Industries Association in Washington. Mr. Johnson said that as Pentagon orders wane, American contractors will have to be more sensitive to foreign customers' needs, "even at the design phase and when putting together contractor teams."

Foreign sales stave off work-force cuts in the short run, but some economists argue that companies may use overseas orders as a crutch, to avoid the painful conversion to commercial production.

American companies cite strong demand not only in the Middle East but also in Southeast Asia, including Taiwan and Singapore,as United States military forces reduce their presence in East Asia. International competition in the global arms bazaar is already heating up among Washington's historical allies, including France, Britain and Germany, as well as Russia and China. For example, the Saudis were weighing British-made Tornado aircraft before Washington approved the F-15 sale. The American M1-A2 and the British-made Challenger are vying for a Kuwait order of about 250 battle tanks.

Industry officials say that international sales will help domestic production by keeping down unit costs for Pentagon purchases. For example, Mr. Hibbard said that the 325 F/A-18's that McDonnell-Douglas is selling over the next several years to foreign customers, including Finland and Switzerland, shaved $2 million off the cost of each of the 871 F/A-18's the United States Navy has bought for $24 million each.

As overseas orders become more important to military contractors, the Government has been under increasing pressure to facilitate such sales. Even before the Bush Administration exercised what critics call a jets-for-votes strategy, it was for the first time paying for United States warplanes and other arms to be flown to the big air shows in Singapore and Paris. The Europeans have done this for years to help their industries.

In addition, the Administration recently announced that it would end its policy of charging a fee on sales abroad of military equipment or commercial derivatives that were developed with Government research money. It also agreed to seek to repeal legislation that requires such fees on sales of major military equipment by the United States Government to other nations.

There is also greater support in the Administration for an industry-backed proposal under which the Government would guarantee private credits for foreign purchases of American military products.

"We've had more of a proactive and cooperative role from our Government than in past," said Toby G. Warson, chief executive of Alliant Techsystems Inc., a large munitions supplier based in Edina, Minn.

Companies are not relying solely on Goverment help. They are also experimenting with new strategies. Raytheon last year opened offices in Dubai and Jidda, Saudi Arabia.

Other companies that had not been big players overseas are jumping in. Martin Marietta, which assembles missiles and launchers for the Patriot missile and builds the Lantirn night-navigation and target system for F-15's and F-16's, expects foreign orders to climb to about 20 percent of total sales by 1994 from 5 percent in 1989.

Meanwhile, the politics of lobbying for foreign sales is shifting. In the F-15 sales, McDonnell-Douglas mustered a coalition of industry chief executives as well as labor union leaders to lobby the White House.

"The big difference is that manufacturers have tried to translate the impact sales are having on their bottom lines into domestic political leverage," said one Defense Department official involved with arms sales. "They've done it more effectively in the last two years than ever before."

~ source ~

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