Can America adjust to peace? The experience of the last quarter century, and especially, of the last two years, suggests that the answer is by no means certain. High defense spending has correlated closely with periods of economic prosperity, and cutbacks in defense spending have heen associated with periods of slowdown and recession. The cutbacks in Vietnam spending of the last two years have contributed to high levels of unemployment, with jobless rates in some areas going above 10% and, in particular occupations, above 20%. And the country is now experiencing a condition where there are, simultaneously, large numbers of unemployed workers from depressed industries and pressing unmet needs for new housing, urban transportation, health facilities, pollution controls, and income maintenance.

To explore ways to turn human and material resources released from the defense industry to new domestic areas, the Coalition on National Priorities and Military Policy organized a Conference on Economic Conversion. The conference was held in Washington, D.C, on March 31-April 1, 1971, and was jointly sponsored by twenty-two organizations, representing labor, business, trade, civil rights and other fields of public interest. Many members of Congress gave their support. The conference was addressed by city and state officials, labor leaders, economists, Congressmen, and experts on technical manpower and research and development.

The Coalition was unable to obtain representatives either from the Nixon Administration or from the aerospace industry for the program. Apparently they do not consider conversion of the defense industry from military to civilian pursuits a desirable goal for which planning must be undertaken now. The Conference highlighted the problems of conversion and suggested some new directions for addressing them, as well as revealing how little attention they have received until now, particularly by those in government and industry who are most responsible for the conduct of defense production. This report describes the proceedings of the conference and the conclusions of the Coalition regarding future steps toward conversion.

There must be greater stimulation of the economy, through fiscal and monetary policy, than is now envisioned by the Nixon Administration. Otherwise even the conversion now required by Vietnam cutbacks will take place only with great hardship to the individuals and communities affected.

More federal funds are needed in a variety of domestic programs, particularly those which provide services to urban areas and aid lower income groups.

There should be income maintenance programs to permit workers and professional employees affected by defense cutbacks (as well as by other forms of technological and policy change) to make the transition to new types of employment with minimum difficulty.

⚫Conversion plans should be developed by communities and by defense and aerospace firms to enable them to undertake conversion when defense funds are reduced.

THE NATION TODAY:

CUTBACKS WITHOUT CONVERSION

At the height of the Vietnam War, more than 10% of our national labor force was employed in defense-related jobs. This percentage is dropping due to decreased Vietnam spending, and is expected to reach 7.4% by the middle of 1971. These cuts will affect armed forces personnel, Defense Department civilian employees, and

employees of defense-related industries. According to Defense Department estimates, nearly 2.2 million jobs will have been eliminated by mid-1971.

Ken Bannon, Director of the Aerospace Division of the United Auto Workers, estimated that 380,000 workers, including 60,000 engineers, had lost their jobs in the aerospace industry alone since 1968. While general unemployment in the nation stands at 6%, it is at least twice as great in the aerospace industry. According to economist Lester Thurow, the U. S. has the capacity to supply $30 billion of strategic hardware per year. However, in the current budget, strategic weaponry expenditures are approximately $18 billion; the demand, in other words, is substantially below the potential supply. The industry, which was built to meet the needs of our national security policy a decade or more ago, finds itself today with a large unused capacity. A primary goal of the advocates of conversion is to ease the human toll of this shift in national demand.

Until now there has been little planning devoted to the conversion of factories, laboratories, and military bases from military to civilian work. There has been no effort like the concerted program of conversion planning that was undertaken at the end of World War II. A five-man Office of Economic Adjustment in the Defense Department attempts to aid communities hit by base closures. Aside from this miniscule effort, the Administration's only attempt to face up to the problem has been the announcement of a Technology Mobilization and Reemployment Program, providing $42 million to retrain and relocate approximately 10,000 scientists and engineers.

But the Administration's overall conversion policy appears to be that of the free market, using a growing supply of money from the Federal Reserve System to encourage new investment and thereby to re-employ workers laid off by the defense industry. Individuals will, presumably, find work through the ordinary processes of the labor market, meanwhile creating hardship for millions of people. Where unemployment proves too intractable, the Administration will, instead of aiding conversion, inject new funds into the defense industry. The FY1972 Defense budget is increased by $4 billion; $2.4 billion of this amount is devoted to the procurement of new hardware. The Defense budget has become, in the words of Congressman Bradford Morse, a "technological WPA."

Vietnam-based economy, the country faces two inter-related questions: How can we revive a sluggish economy, putting large numbers of unemployed to work? And can we apply these unused human and material resources to meet the need for public services, especially in our cities?

Το revive the nation's economy, William Wolman, Vice President of the First National City Bank of New York, supported the classic free market solution. He argued that "private saving and private investment will create jobs more surely and more certainly than public saving and public investment." He felt that, as a practical matter, there is not going to be a massive increase in federal spending in domestic areas and so, if one wants to provide a strong stimulus to the economy, the only practical way is through large cuts in corporate and individual taxes. In his view, the only alternative will be a large increase in defense spending, "incredible as that may seem at this point."

He suggested that a cut in federal taxes would allow state and local governments to increase their tax rates, and thereby to overcome some of the financial difficulties currently facing them. Tax cuts would not solve the problems of air pollution or of decaying hospital systems, but he would want to look for market solutions to these problems. Whatever subsidies are given should go directly to the individual rather than, for instance, to the hospital system, for the one form of "power to the people" which really works is purchasing power. Similarly, with air pollution, national standards should be decreed and the market allowed to determine the price of products produced in accordance with these standards.

Senator William Proxmire (D-Wisc.) also argued for the application of classic economic remedies. He told the conference that the real solution to economic conversion is to keep the economy strong, and he advocated increased income tax exemptions and reductions in the tax rate to provide more money in the hands of consumers. Concurrently, he recommended the release of funds for model cities, water and sewer projects, urban programs, and other social service which Congress had appropriated but which the Administration had refused to spend. Like Wolman, he felt that tax cutting in itself should be a major goal of lowered defense spending. Increased government spending does not necessarily make things better, and the best boost to economic prosperity will come through increased private spending as a result of tax cuts.

Others, however, asserted that this remedy would not really address the ills of the nation. Mayor Henry Maier of Milwaukee, calling the nation's cities "the dustbowls of the 70's,"

stressed their need for the money now being funneled into military programs. In his view, the basic economic root of the urban dilemma is that "there are needs without markets and markets without real needs... [housing, transportation, health facilities] are real, basic needs, but there are no markets because the money is not attached to the need. The people and the cities that have the needs do not have the money." Governor Milton Shapp of Pennsylvania observed that "we have the capability in this country of keeping all of our people employed for decades just rebuilding our cities, our transportation system, and improving our environment. If we could just concentrate on those three fields, there would be no unemployment in this nation." And yet, as many speakers noted, we do not seem able to direct the necessary financial resources into these areas of the economy.

A useful illustration of our domestic needs is provided by the 1969 Economic Report of the President, in a table prepared by the Cabinet Coordinating Committee on Economic Planning for the End of Vietnam Hostilities. Entitled "Illustrative New Programs or Expansions of Existing Federal Programs, Fiscal Year 1972," this table suggests that new or expanded programs for which plans already exist, in the fields of education, health, nutrition, community service, income support, environmental quality, transportation, urban development, and science would require $39.7 billion. According to Professor Seymour Melman, this would provide 5 million new jobs, more than enough to offer employment to the workers who might be laid off as a result of further substantial cuts in the military budget.

At the same time, it was pointed out that further defense cutbacks alone, while releasing money that can be applied to solving the country's domestic problems, will not ease the existing economic difficulties of the country or re-employ the currently unemployed workers. To address those conditions, more money must be injected into the economy than is contemplated in present budgetary projections. Furthermore, there is simply not enough money from likely cuts in the defense budget during the next few years to provide the funds needed to meet the needs of our cities, of the poor, and of the neglected social infrastructure of this country. More money must be appropriated by the federal government, and additional money must be found by altering the tax structure so that the nation's surplus funds are put into socially productive investments. This can be achieved with appropriate tax reform. Economist Arthur Okun has pointed out that if our combined federal, state, and local taxes, as a

percent of GNP, were to match the average of the major Western European countries, we would have about $40 to $60 billion a year in additional governmental revenues.

Sol Linowitz, Chairman of the National Urban Coalition, discussed the Coalition's recently published Counterbudget, which addresses this need for additional revenue directly. He suggested that our inability to produce reordered priorities, in spite of all the rhetoric surrounding it in recent times, has reflected our failure to apply "our single most important instrument for relating national goals to scarce public resources: the federal budget." By taking a detailed look at the budget, one can devise an alternative which will, by substantially reducing defense spending and increasing revenues, permit a truly significant start in attacking the nation's social problems. As Linowitz said, "The American people must confront the hard fact that if they want more and better services, they must be willing to pay for them." He urged that the entire budgetary process-both within the Administration and in the Congress-be opened up to greater public participation, SO that the budget may be responsive to the needs felt by the people.

BEYOND THE CONVENTIONAL WISDOM

A national consensus has not yet developed on the most desirable route to go on using resources released by defense cuts. There is strong resistance, especially in the middle class, to rising taxes, at the same time as there is a growing recognition of the need for increased public spending on services that only the public sector can afford. Providing money released from defense spending to individual consumers through tax cuts would simply continue the existing approaches. As one participant pointed out, the only response to rising pollution of the air is to install a private air conditioner in the individual's home and in his car.

Nor has a consensus developed on the responsibility of the public to aid those affected by shifts in public spending. The conventional economic wisdom suggests that all that is needed to facilitate conversion is a generally expanding economy encouraged by appropriate fiscal and monetary policies. In order to sustain employment, hold back inflation, and insure adequate economic growth, cuts in the military budget must only be offset by spending on new government programs, or by tax reductions which will put more money in the hands of private

consumers.

However, such general programs are not sufficient. While some will see cuts in defense spending as promoting a desirable shift in the nation's priorities, others, more directly affected,

will see them as yielding, in Senator McGovern's words, only "lost jobs, a declining tax base, and the destruction of communities." The concentration of military activities in particular industries, regions, and occupations, and the emphasis in defense corporations and laboratories on specialized military technology, produce problems on the local level which such national policies do not address. Cutbacks hurt specific individuals in specific communities, and measures are needed that focus on workers and communities affected by shifts in defense spending. In the long run, the policy of maintaining high aggregate demand by fiscal and monetary policy can produce the kind of economy we might favor; in the short run, the use of these policies shifts the main burden of conversion onto the worker, who must be laid off from his defense job and find other employment, often in another part of the country. In the process, individuals, firms, and communities are hard hit during the transition period. The costs of a shift in national policy are then borne by a few affected individuals, firms and communities, rather than by the nation as a whole.

As a general matter, our society lacks economic techniques that will allow it to adjust with minimum hardship to new conditions, whether they arise from shifts in defense spending, a demand for environmental controls, or rising foreign competition. Such measures would allow the society as a whole, and the individuals and communities within it, to alter their course in response to changed circumstances; the existing alternatives are only to throw the burden on the individual worker or to resist the change, as institutions committed to outdated policies seek to avoid the costs of change.

We also lack mechanisms for planning to accomplish such shifts. Thus, those who are interested in the problem know how difficult it has been to sustain interest in planning for economic conversion. As Congressman Bradford Morse (R-Mass.) said, "Not until the government cutbacks actually began to take place and highly skilled professionals began finding themselves without jobs did people awaken to the realization that a dangerous situation was developing. Now, at long last, there has been an explosion of interest." What we need, if we cannot plan for future shifts, is some other means of allowing change to occur without either economic recession or personal suffering. As Senator Charles McC. Mathias (R-Md.) said, "We need more than mere patch-up legislation to cope with current problems which have developed as part of our shift away from heavy military spending on the Vietnam War. We must cure what has become a chronic disease: the massive dependence of giant corporations, their

workers, and the communities in which they are located on the whims of the government."

ASSISTING THE INDIVIDUAL

One theme that emerged in the conference, and that seems increasingly to reflect the trend in conversion thinking, is a concern for the individual whose job is eliminated by a shift in defense spending. The problems of the worker have been brought to the fore by the combination of a weak economy, which seems unable to absorb unemployed workers; the large number of unemployed scientists and engineers, a highly visible segment of the population whose specialized skills seem no longer in demand; and a growing recognition that a highly structured society such as ours has a responsibility toward those who cannot find work. Guaranteed income plans were not explicitly discussed at the conference, but the assumptions behind the developing movement toward some form of income maintenance seemed to underlie much of the discussion regarding the need to provide economic security for workers.

The emphasis on providing economic security for individuals points toward a new, more humane economy for this country. Walter Rosenblith spoke at the conference about the need for a new "science with a human face;" what we need even more urgently is an "economy with a human face." As Senator Mathias observed, "We must begin dealing with the human problems created when industry, a community, and thousands of workers gear up to handle a major government program, only to be told at some unpredictable point: We don't need you any longer, fend for yourselves." "

At the present time, workers bear the full impact of changes in national policy, through the customary practice of laying off workers when federal contracts lapse. Individual firms are not able to protect individuals or communities that have become dependent on them, since they must first safeguard their own financial position and the investment of their stockholders. It falls, then, to the broader society to provide the cushion for workers and communities. As Senator Proxmire commented, "The cost of change, the cost of unemployment, can and should be broadly shared by the whole society. It is grossly fair to expect people who have no control whatsoever over these great economic forces to bear the brunt of change. The answer is a much more generous unemployment insurance program and reconversion allowances."

These measures are especially needed when the economy is not taking up the slack. As Senator George McGovern (D-S.D.) said, "The

Administration has devised a simple solution of merely assuring the displaced workers that policies to promote an expanding national economy will bring their eventual re-employment. The difficulty is, of course, that the promise of an expanding economy is still running far ahead of the deed-and the deed is running far behind the duration of unemployment compensation insurance."

The conversion planning of the early 60's focused on measures to enable individual corporations to convert, assuming that the workers would convert with them. However, it is not recognized that conversion plans must be focused on the people who have lost or will lose their jobs, while the management generally can take care of themselves, through residual corporate funds which they control. Plans to convert industries and firms too often then become plans to protect top managers and stockholders rather than the current set of employees. As Ernest Fitzgerald observed, somewhat caustically, "It's a great mistake to think we're going to help the folks in Seattle by giving money to old massa Boeing and letting him pass it on to the field hands." The firms will convert, but they will end up with a new set of employees.

The major form of corporate conversion today is diversification. Firms buy up companies operating in the civilian market, put their capital into such ventures, and lay off the scientists, engineers, and skilled workers in the defense division of their firm. The management has something to manage and the stockholders have a productive use of their investment, but the workers are left to find their own way in an uncertain labor market.

Once the focus is placed upon the workers, it becomes clear that the problem of conversion is far broader than that of moving from a wartime to a peactime economy, immediate as that issue might be. In our society, conversion is a constant occurrence. As Governor Shapp pointed out, the farm programs of the 1930's, combined with the introduction of mechanization, produced one type of conversion. Farm workers were forced to emigrate to the cities where they found themselves completely unequipped to do the jobs available in that setting. There was no aid that would have provided training for conversion, and these neglected farmworkers form a large portion of the welfare load today. Similarly, automation in the coal mines caught many workers unprepared with the skills they needed to move to new types of employment. Many diverse interests are concerned with measures to assist workers in industries affected by technological change, foreign competition, and new environmental quality

controls. Thus the applicability of conversion measures must be broadened considerably beyond those affected by shifts in defense spending.

The Conference explored new ways of assisting workers to make the transition from one type of employment to another, including such techniques as conversion adjustment assistance grants, relocation aid, conversion retraining fellowships, on-the-job training and public service employment.

Senator McGovern called for an examination of the notion of guaranteed jobs. Beginning with the recently passed Nelson Bill, which would provide 150,000 public service jobs, he would move to a situation where a job would be guaranteed to every American who wanted work. He argued that the backlog of needs in this country is so great that such jobs could easily be provided.

Seymour Melman suggested a "bill of rights for industrial employees," providing the essential requirements for an occupational conversion program: a year or more of occupation retraining and education, income maintenance and a moratorium on mortgage and credit payments for that period, and benefits that would enable individuals to relocate into new jobs. He pointed out that defense industry has produced a heavy concentration of scientists and engineers in particular regions of the country, while other areas have been left "technically under-developed." If the talents of these people are to be put at the service of such areas, we must enable them to relocate their families and to find useful employment that will take advantage of their skills. Since the Conference, Senators McGovern, Hatfield, Hart, and Eagleton have introduced the "Emergency Transition Allowance Act" (S. 1631) providing financial benefits for a period of one year for a worker displaced from a defense, space, or atomic energy-related job, and for eighteen months if he is pursuing a training or education program.

Governor Shapp argued that, in a period of rapid technological change, we need to provide continuing education that will enable workers to make a useful contribution throughout their work life. However, it was also pointed out that such training will be useful primarily in the context of on-the-job or apprenticeship experience, where it can be directly related to a job which the individual knows he will have when the training is completed. There are few workers who will seek extensive re-education for new careers unless they can be assured that there will be suitable employment awaiting them when they finish.

This is especially important if national priorities are to shift into new areas, where workers must acquire new skills and professional people must learn new professions. The federal