The economic opportunities following disarmament BY HUBERT H.
HUMPHREY United States Senator from Minnesota and Chairman of the
Subcommittee on Disarmament, Senate Foreign Relations Committee
What economic opportunities will face the United States, the
Soviet Union, and other countries once we achieve a world where
armaments no longer are being produced and maintained? The
economic questions involved relate to the transition to a peace-
time economy as well as to the maintenance of a productive
economy and a high level of economic growth and employment, once
disarmament has been achieved. Most businesses which have
inquired into conversion from defense work to reliance on
nondefense income prefer con- version at a slow or moderate rate.
In their view, such a pace would result in the least disruption
of business activity. Yet, this runs head-on into the first
*problem@ disarmament, once started, needs to move at a
relatively fast pace. The pace need not be so fast as that of the
post-World War 11 demobilization, which took place within a
period of about one year. At the very least, how- ever,
disarmament should proceed with all deliberate speed. The Soviet
Union proposes general and complete disarma- ment in five years,
whereas under the United States plan, 65 per cent of a *nation's
military force would be dismantled in six years with the
remainder being reduced within some *agreed- upon period. Arms
production would cease much sooner, and both the United States
and the Soviet Union contemplate an *al- *71' most complete halt
in the output of major
armaments with in about the first year of a disarmament program.
This means that major emphasis must be placed on planning, so la
employment and productive capacity do not shrink sud- denly to
the overall detriment of the economy. The more *plan- *ning that
can be done now by industry, labor, government, and local
communities, the smoother the conversion would be. Much can be
accomplished by each of these four groups engaging *'m serious,
concentrated preparatory work. Industry-and by this I mean
particularly the major defense contractors-needs to start
thinking now about shifting from one bona of production or
defense activity to other, equally *remuner- *ative, activities.
For many companies such a shift will tax the ingenuity of their
planners, financial consultants, and market analysis. Since only
a few companies receive the bulk of defense money (about two
dozen companies account for about 70 per cent of the total),
these firms have a special responsibility to plan for the
conversion of their plants to meet peacetime demand. Several of
these companies might assign talent from their marketing and
economic planning divisions to report on the selling
opportunities which would open up at home and abroad. Disarmament
would be anything but an economic depressant; rather, it should
stimulate the world-wide demand for goods and services. Given the
prospects for expanded trade both at home and abroad, the total
planning and marketing talent of key parts of the American
defense as well as nondefense industry ought to convince American
businessmen, as well as American business as such, that it can
make the most of a disarmed world. *The key companies have a
responsibility not only to their own employees and stockholders
but also to the communities in which they operate. The way in
which they proceed will affect their sup *iers-the many companies
which sell them raw materials and parts and the numerous
subcontractors whose economic future, at least in the short term,
may also be tied closely to the well-being of the larger
corporations. Some of the very large companies engaged in defense
busi- ness have no commercial base whatsoever. They were created
as a result of defense demand. Never, or rarely, have they to
gear their sales
activities to nonmilitary customers. any small firm, particularly
those in the fields of electronics and research and development,
also have no previous experience in the commercial market. Such
companies, especially the larger ones, may have more difficulty
in adjusting to a peacetime econ- omy than would those defense
contractors who are primarily commercially oriented, even though
the latter may receive a huge portion of their income from
Pentagon orders. The "pure" defense-type contractors, as well as
the others engaged in defense business, should not be expected to
make ad- justments without assistance from the Federal
government. The amount of money earned by private business for
defense procurement and research and development exceeds $25
billion annually. The number of workers involved in such work is
somewhere between 1.5 and 2 million. These figures do not *in-
*clude the many workers who also are defense workers in the sense
that they produce supplies, materials, and parts for the prime
contractors or the first tier of defense subcontractors. Nor do
they cover people working in communities which provide services
to defense employees. Another group of employees *in- *cludes
those engaged in military construction and those who are actually
members of the armed forces and their civilian *counter- *PaVs.
Let us not forget that even if the disarmament plans of the
United States and Soviet Russia were implemented now, not all of
the $25 billion currently expended for procurement and *re-
search and development would be cut off. For example, each year
the annual sum devoted to such matters as improved communica-
tions *kcrtase& In 1962, 26 per *cem of the major defense and
weapons programs had nothing to do with weapons per se, but
rather were concerned with improved communications, *surveil-
lance, and to some extent with transportation. Furthermore, a
good deal of research and development would not be prohibited by
the terms of a treaty. As a practical matter, however, such
activity would almost certainly diminish, if not disappear *al-
together, as a consequence of world disarmament. Switching
research and development funds from defense to peacetime projects
is increasingly recognized as a key to *im-  now provement of the economic growth rate.
Today over 50 per cent of all research and development in the
United States is for mili- tary purposes. *This has inhibited
economic growth because we are not *utflizing enough of our great
inventiveness for productive ends. An economy that is not moving
forward in the fields of *re- search and development is a
stagnant economy at best, Thus, re- search and development should
be switched from the military to the nonmilitary track as soon as
considerations of national security permit. Before proceeding
further in the discussion, the bogey of -Federal intervention in
the American free-enterprise system has to be faced and stared
down. There is surely no argument about the fact that the defense
industry as such depends for its very existence on a continuing
flow of government contracts. With almost every contract, comes a
degree of government *"interven- *tion"-e.g., in the form of
security regulations, quality specifica- tions, performance
reviews, and the like. By the same token, the Federal government
has an important role to play in effective industry conversion to
a low level of defense activity. First, the government can give
industry prompt and full in- formation about the progress of
disarmament. Let us assume, for example, that *amajor disarmament
agreement were to get under way on July 1, 1964, and that all
production of armaments were to stop no later than June 30,
*1965-in other words, within a year. To carry out such activity
with the least risk of serious economic disruption, a schedule
would have to be worked out with each company and each plant
governing the cessation of particular items of defense *reduction
and spelling out the *addi- *p *tional activity to be undertaken
by the plant so as to utilize its employees and other resources.
If a particular plant were to be closed down, the workers would
obviously have to have alter- native employment *opportunitie
*ither with their original employer or elsewhere. One cannot put
a trained work force out on the streets. It is inconceivable that
the Federal *govern- men, which placed *dw defense business in
the hands of a given plant or company in the first place, would
wash its hands of the consequences (A withdrawing that *lnxiness.
Not only must the Federal government work with the *com-
particular plant,
but also with the appropriate union *ives, the employees of that
company, the local corn- *cials and organizations, and to some
extent with state well. All such activity would have one central
aim: that of keeping production and employment at a level
consonant with a minimum of economic dislocation to the community
as well as to the particular plant. To accomplish the ends
described above, there must be a mechanism within the Federal
government to deal with or to plan for individual cases. No such
mechanism now exists, and because none exists, few in industry
have thought the time pro- pitious to initiate programs and plans
for conversion. Within the Federal government the responsibility
rests *principally with four Federal agencies-the Departments of
Defense, Labor, and Commerce, and the Arms Control and
Disarmament Agency. Together, these four agencies have the
information and the ex- perience to plan ahead for disarmament.
That they have not yet done so is an indication of the bleak
prospects at the moment for a treaty on general and complete
disarmament. Yet, in this area, as in many others, one thing can
lead to another. Just as intense study and research on any topic
may open up new possibilities for success, so concentration on
the problems of conversion from defense to nondefense business
may open up new avenues of progress in the disarmament
negotiations themselves. If the "known" of an arms race is to be
replaced by the "unknown" of a world at peace, then an essential
ingredient in reducing the fear of the unknown is to pinpoint the
conversion requirements of individual plants. But the ills of
individual defense plants cannot be treated in a vacuum. The nuts
and bolts of any system have to be adjusted in relation to each
other and to all other movable or immovable parts. This, of
course, indicates another area where the *Federal government must
"intervene," if that is the word, to ensure maximum economic
health during a period of conversion. *The appropriate Federal
agencies must explore the total needs of the United States
economy so that individual companies or a par- ticular industrial
group can best utilize such information to plan their own
conversion and expansion into the civilian sector.  recall that back in 1953, when a settlement of
the Korean *conflict appeared imminent, the Department of
Commerce pub- lished a useful study called "Markets After the
Defense Expan- sion." *The study surveyed the needs of each of
the major seg- ments of the economy: housing, schools, highways,
chemicals, aircraft, and so forth. Forecasting, of course, is
both difficult and hazardous, but the Commerce study gave
business executives a better idea of what was ahead for American
industry. Equally important, perhaps, it indicated that there was
plenty of room for expansion of civilian production. Thus it had
a psychological impact which transcended the cold message of
statistical data. As we all know, the decisions of the chairman
of the board can never be made by computers alone. Psychological
attitudes can be, and usually are, determining factors in the
success or failure of any business venture. For this reason, if
for no other, the *psycho- logical aspects of conversion to peace
must not be under- estimated, There is no reason why any study of
future needs should be limited to the United States. Ours is not
the only country in which defense spending and activity consume
an enormous slice of productive capacity and national *inomo In
considering Ox conversion of economic resources, therefore, the
economic *pri- *adhs and resources of other countries by no means
should be neglected. 'There is unquestionably a potential market
indeed a crying economic need, for industrial *expans every
corner of the globe. I would wager that there are enough surveys,
es- pecially of the economic needs of Asia, Latin America, the
Mid- *dle East, and Africa-all of them regions in early stages of
*in- *dustrial and agricultural development-to be distributed
free to every man, 'woman, and child on earth. What is needed now
*i an examination of ways in which resources released by a cut-
back in defense spending can be exploited quickly to help meet
economic requirements both at home and abroad. Let me H-
*lustrate by mentioning one very large project which could have a
*bvrncndous impact on the *world's economic growth and *well-
being. The sine qua non for success of such a project, however,
is effective participation by the United States government, cer-
tain international agencies, and the governments and industries  *llowing disarmament 81 speaking-and let me emphasize that it *t
of *many@f the need to harness for *t the *unutiumd or misused
water resources with et is blessed. *ted States alone, there is
not a single state that not have a water problem. The problems
vary, but they be grouped under these headings: pollution
abatement, water storage capacity, navigation, Hood control,
watershed improve- ment programs, irrigation needs, fish and
wildlife conservation, recreation, municipal water supply,
industrial water supplies, and hydroelectric power. *The Business
and Defense Services Ad- ministration of the Department of
Commerce recently estimated that between 1958 and 1980 a total of
$228 billion will have to be invested in order to solve or
ameliorate the *nation's *water- resource problems. What do
United States water problems have to do with the economic impact
of disarmament or arms-control agreements? The main connection,
as I see it, is first, that both problems affect a broad stratum
of our population and, second, that a solution of one of our
gravest natural-resource difficulties might *very well flow from
a cessation of the arms race. Is this just another utopian scheme
depending upon brotherly love for its fulfillment? Not if certain
essential elements can work together to diagnose and solve
individual cases-in this instance, each individual water problem.
*These elements would consist, first, of industrial groups which
are in a position to tackle the problem with drawing board and
bulldozer, and second, of the organizational and financial
resources of government and the community which are necessary to
complete the project. For ex- ample, the Department of the
Interior and the Army Corps of Engineers can delineate water
needs; the Defense Department and the Arms Control and
Disarmament Agency will know that *"X" billions of dollars will
be released as a result of a disarma- ment agreement; and
American industry will know that a cer- tain number of plants in
a given locality will have a certain num- ber of employees with a
certain distribution of skills which a disarmament agreement
would make available for alternative ac- tivity. The fusing of
these three groups-government, industry, and community ought to
make for one successful and
*con- program of conversion. *The main question would appear to
be one of organization and planning. The press is full of actual
or potential conflicts spawned by the immense problems of water
on a world-wide scale. These not only impede the economic
development of nations; they also cause serious political
disputes leading in some cases to the threat of war. *Think of a
few of the great river systems in the world which run through
more than one country or form a boundary between nations: the
Indus River and its effect on *Indo-Pakistan relations; die
Jordan River system flowing through Israel, Jordan, 'Syria, and
Lebanon; the Amazon River with its special signifi- cance for
Brazil, Colombia, and Peru; the Danube River, which historically
has influenced the development and mutual relations of the
countries of Central and Eastern Europe; the Nile, which is a
source of life not only to the United Arab Republic but also to
the Sudan. These are some of the major rivers of the world *wmck
if controlled and properly regulated, could enhance many times
over the economic well-being of millions upon millions of people.
Furthermore, an amicable settlement of the conflicts rising out
of these major river systems might well promote better political
relations among the countries immediately involved, In the
absence of any coordinated effort to solve regional water
problems, each country is attempting to work out its own
solution, using its own limited funds, and talents. In some
cases, progress is inconceivable without prior solution of the
political difficulties related to the geography of the area. In
only a few cases are United States and international development
programs providing assistance, Would it not help to keep a
disarmed world at peace if at least some of the economic
resources released by *t@i arms reduction were diverted to the
establishment of an *inter- national water-development authority?
Such an *international *in- It! *stitution, by utilizing the
plants, employees, funds, and genius formerly devoted to arms
production and the defense industry in general, could help us to
make a giant stride forward in the direction of international
economic development and interna- *tiona-I political stability.
For this purpose, it would not be necessary to establish just  Imp unities following disarmament 83 *-.- - -nal
water-development authority. Indeed, *t arrangement would
doubtless be the creation authorities. The prime requirement,
however, would he formation of a pool of experience and skills
for use in rent projects the world over. Any such development
along lines could speed progress and improve efficiency. Let us
bear in mind that in *Wagner's Ring cycle, the gold of the
*Nibelungen finally returns to the bottom of the Rhine after
bringing untold misery to all who competed for sole possession of
it. Our task today is to avoid analogous tragedies in the
handling of our water riches. We can accomplish this *task@r at
least go far toward accomplishing it-by exploiting this wealth
for the good of the greatest number. One of the means closest at
hand is the vast *socio-industrial complex hitherto devoted to
the production and maintenance of defense establishments
throughout the world. The solution of local, national, regional,
and international water problems is only one of several possible
beneficiaries of a major disarmament agreement. *There are plenty
of domestic and international projects which could absorb excess
productive *ca- *pacity-speaking in terms of human beings as well
as of plant and capital. At home, we have fantastic problems of
mass transit and slum clearance. And, of course, there is always
the explora- tion of outer space which seems insatiable in its
demands for funds, talent, and resources. It would be a serious
mistake, how- ever, to look upon space exploration as an
automatic substitute for our present expenditures on defense.
Space is important, but our needs on this planet cry out so
loudly for attention that it would be a coldhearted country
indeed which gave excessive pri- ority to the space race. The
areas are legion where reductions in military expenditures could
have a decisive impact on the domestic economy as well as on
economic conditions abroad. Of course, as President Kennedy
indicated in response to calls for drastic reductions in the
*nation's space program, there is no guarantee that the money
saved by a cutback will automatically be reinvested in a pro-
ductive economic or social activity. But in my experience, there
is sufficient enlightened self-interest on the part of our
political  A *fvtwless *VVorld to justify the assumption *that a determined
effort will be made under conditions of disarmament to absorb the
1 0 per cent of our gross national product currently being spent
on military needs. Heading the list of the areas where such funds
would be most usefully spent are: education, urban renewal, urban
transit, public health, the relief of economically depressed
areas, the conservation of natural resources, and the overall
improvement of our human environment through a variety of
research and development projects. One student of our domestic
problems estimates that over and above our expenditures in the
current year, the nation could invest some $5.5 to $9.5 billion
in education, $10 to $15 billion Ea urban renewal, $4.0 billion
in conservation and soil renewal, $0.5 billion in urban transit,
and $1.5 billion in public health.' The same authority
conservatively estimates that approximately 38 million Americans
(more than one in every five) live in pov- erty. According to his
analysis of this figure, which is based on 1960 statistics:  
Far more than a fourth were in consumer units *(fam- *ilies and
individuals) where the head was not employed. Far more than half
were in units whose head had eight years of education or less;
and almost a third were in units whose head was female. About a
fourth of the total *num- her of people living in poverty had
consumer unit heads aged 65 or over. More than a fifth were
nonwhite. More than a sixth were farm people. More than two
fifths lived *ia the *SoUth.2 Professor Ullman concludes, and I
see no reason to quarrel with his logic, that "about 20 per cent
of the American domestic market remains to be developed by
improving the productive- ness of 38 million Americans, and
thereby boosting their pur- chasing power." I John E. Ullman,
"Civilian Markets for U.S. Military Industry," A Strategy for
American Security: An Alternative to the 1964 Military Budget,
*ed. Professor Seymour *Metman, Columbia University (New York:
April 30, 1963), pp. *16-18. *1 "A Neglected Home *Market-38
Million Americans in Poverty," ibid. *p. *18.  *dc opportunities following disarmament 85 *Ares alone should
provide incentive for timely *con- *anning by government in
consultation with private .tent. Added to this picture, however,
are some very *,4ng trends in our industrial economy itself. /the
first place, there is evidence that our present emphasis *Ditarv
*Pr@duction actually tends to make United States *in- *ompetitive
not only in the world market, but even United States." *11 We
are, for instance, steadily *los- as one of the *world's leading,
most efficient, and *tive producers of machine tools. Forty per
cent of the typewriters sold in the United States are of foreign
manufacture. Far from pushing automation for all it is worth,
American man- agement is actually too slow to invest in the
research and new equipment that would raise labor productivity
and eventually provide employment for millions. In 1962, a
McGraw-Hill Book Company survey reported that 60 per cent of the
pro- ductive facilities in the United States were bought before
1960. Even more significant, a large proportion of the newly
designed equipment now in use or on order is destined for
military *cori- *sumption and thus has little or no productive
use. Last August, in hearings before my subcommittee of the Sen-
ate Select Committee on Small Business, I noted that about 65 per
cent of all United States research and development is paid for by
the Federal government. In Germany and Japan, countries whose
economies are growing by leaps and bounds and which are producing
some of the most modern and efficient civilian goods, 85 cents
out of every research dollar goes into the con- sumer market. I
still have not heard a satisfactory answer to the extemporaneous
question which I asked last summer at the above-mentioned
hearings on "The Impact of Defense Spending in Labor Surplus
Areas": *VVhat is happening to our civilian economy as we plow
more and more of our scientific personnel, our brains, into the
military and into space and into atomic energy for military
purposes? Where are we going to end up in this Seymour *Melman,
"Military Emphasis Blamed for State of *Econ- ibid trade
Competition with these Belgians and
Dutch, who a *e clever, and   who are spending more money for
civilian *r aspects and will develop products cheaper, better,
and more serviceable? The international situation compels us to
maintain our cur- rent level of defense spending, *N6 one,
however, should look with equanimity on the chilling effect of
the arms race, which forces us to produce in massive quantities
for non *reductive ends. We can derive no comfort from the fact
that *theptalents of over half of our scientists and engineers
are being tapped for military instead of exclusively civilian
Purposes. In a disarmed world, this serious economic *imbalances
*can and must be cor- rected. The United States can and must
resume its place as a model of the self-sustaining industrial
society. Some may object that the emphasis of this chapter thus
far has been on programs that would require sponsorship by the
Federal government or *bv international institutions. This
is-true, and we must face the *fact'that neither the solution of
major needs nor the *conversion of a $50 billion defense program
to *non- *ished without the *involvement *ized government and
international economic activity in the country which is initiated
and sustained *ted States government. No responsible person would
advocate taking this huge sum *and abandoning it to the vicis-
situdes of a heterogeneous and fickle marketplace. This by no
means signifies that continue large-scale *narticipation of *gov-
*ernment in the economy *cels out the need for gradual and even
*increasi *ation in the mapping out of economic *coE *s. Ours is,
after all, a *free-enter- *prise *econom, *sible official would
be so *unscru- *pulous as to ion of the defense industry as a
foot in the door for *outrieht state ownership of the means of
production. The problem *@annot be stated in these terms. Ile
only realistic way is to recognize, as large segments of private
industry have already recognized, that Only government and 87
 international programs of considerable magnitude can absorb
 most of the sums that are currently expended on defense.
 As stated earlier, many of the *ke@ companies receiving the
 bulk of defense orders have had little' or no experience with
the
 commercial marketplace. In 1959 (the last year for which figures
 are available), some fifteen companies received over $10 billion
 from defense contracts. These *dteen companies are completely
 defense-oriented. Right now they ought to be working with the
 government to determine how the skills of their employees and
 their plant equipment might be utilized to enhance their future
 economic prosperity. Obviously, they cannot receive a monopoly
 on any project. But given the responsibility of the government
 to maintain full employment, and given the burden of unemploy-
 ment already weighing down the United States economy, these
 defense-oriented companies must turn not only toward the
 marketplace, but rather must first attempt to cooperate and co-
 ordinate their adjustment activities with government. This is
the
 only visible way to solve those national and international eco-
 nomic and social problems which will help to keep a disarmed
 *world- disarmed and at peace