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Disarming dilemma ahead for new president

TOMORROW is the traditional US Labour Day, which is celebrated the old-fashioned way - with parades, bands, and long-winded political speeches. In eight key states, however, there will be little cause for joy as they review new federal government figures that indicate a dramatic erosion of their labour base. Thanks to a report in the New York Times, we know that the Pentagon is quietly preparing dramatically larger military manpower reductions than had been expected. On top of stagnant economic growth, this comes as a shock to the eight most heavily defence-dependent states - California, Connecticut, Florida, Maryland, Texas, Virginia, Georgia and South Carolina.

The planned cuts foreshadow much larger reductions in military spending cuts after November, no matter who wins the presidential election. Pentagon officials are convinced that bigger reductions are inevitable. 'The difference is that under Clinton it will come faster, and under Bush it will be slower,' said a high-ranking official. Either president would need the funds from the defence savings, estimated by the Pentagon to be worth up to dollars 80bn by 1997, to pay for domestic programmes.

The bigger cuts will require annual defence budgets to shrink from current levels of dollars 280bn-dollars 290bn to dollars 240bn-dollars 250bn and even lower. The US Congress has already made this quite clear. The Bush Administration requested a total of dollars 291bn for defence spending this year but is likely to get only about dollars 271bn when Congress hammers out a final compromise this autumn. Pentagon planners are reluctantly looking at further manpower reductions to meet the expected spending targets in the fiscal 1994 budget, which the new president will submit early next year.

This is not only devastating news to the hardest-hit states, it is also far from certain that the overall US economy can absorb the cuts without sinking into another recession. A good gauge of the military's economic importance was the palpable relief last week of Florida's Governor, Lawton Chiles, on hearing President Bush's pledge to rebuild the hurricane-devastated Homestead Air Force Base. 'Without the base, that part of the state would die,' he said.

It is estimated that national defence accounted for about six million US jobs in 1991, or about 5 per cent of national employment. About two-thirds of these - almost four million jobs - were civilian, the bulk of them in defence-related industries. The independent US Office of Technology Assessment (OTA) estimates that by 1995, more than one million of these civilian jobs will vanish and that by 2001, 1.7 million could disappear.

Contrast this with General Motors' announcement that it would reduce its workforce by 74,000 - a plan that nearly spawned violent strikes last week - and the GM numbers seem less shocking.

In addition, there are two million jobs held by men and women in uniform. Their number is likely to shrink by 25 per cent. Consider the impact of these cuts on the Norwich-New London area of south-east Connecticut, where one in five workers holds a defence-related job.

In purely macro-economic terms, the size and speed of this defence rundown is less drastic than comparable reductions after the Korean and Vietnam wars. However, this time the cutbacks could eliminate companies and industries, which was not the case after previous military build-ups.

These realities raise a big policy question: should the US government simply walk away from its enormous investment in national defence, adopting a laissez-faire attitude that the market will determine the final outcome?

On this issue, the Bush Administration is ambivalent. Last May, it announced programmes to help affected workers and communities. These included adjustment assistance and retraining programmes, extra investment in civilian technology and an accelerated effort to transfer dual-use technology from government labs to the private sector. However, the steps were small and taken reluctantly. The Bush Administration prefers a more hands-off approach.

The US Congress is a different story. Whoever becomes president in November will face an 'activist' Congress on defence conversion, which will result in a 'managed' approach to living with less military spending.

The OTA points out that no other industrial country would undergo such a dramatic shift without benefit of government planning and assistance. In this respect, the US could learn much from France's experience in restructuring its defence industry.