tooling of production facilities, that would have to occur for
successful conversion.

Another area of concern is the repositioning of defense
from a leader in technology to a follower. Critics argue that
most of today’s defense technology was designed over a de-
cade ago and technological capabilities have advanced over
that time, making many systems archaic and uninteresting to
the civilian economy.” For example, the grand Inter-Conti-
nental Ballistic Missiles built in the 1950s, still contain, and
are operated by 1950s’ technologies." Attempts to upgrade
the missile seem to compound the problem because the mili-
tary contract/bid process can take anywhere from 90 to 300
days. With the frequency of turnover in technology, long
delays in getting parts mean that they are often out of date
before they are delivered.”

Procurement reform. Many observers believe that one of
the key reasons for the recent decline in technical pioneering
has been the cumbersome acquisition process. Regulations
effective years ago have become a major obstacle in today’s
creative processes in which new technologies have shorter
useful life spans before they are superseded. The largest
constraint is on the ability of both the Defense Department
and private-sector providers of defense goods to buy com-
mercial products or crucial technologies in time to use them
efficiently." Even if these technologies are bought, the costs

of transforming them to meet military specifications would
drive their price skyward because of, perhaps, strict perfor-
mance requirements and rigid test designs. Strict military
specifications made sense when military products were the
cutting edge of technology and no other standards had been
set. Now, that cutting-edge innovations are increasingly
derived from nonmilitary producers, the Defense Depart-
ment is willing to adopt their specifications.” It is believed
that any chance that dual-use technology will succeed, lies
in the removal of unnecessary regulations or an adoption of
commercial practices, when appropriate.” The military has
already gone to great lengths to provide solutions to these
problems. So far, specifications on some existing projects
have been slashed by up to 80 percent, and nearly half of
the 105 most costly military standards have been canceled
altogether.”

Although reform of specifications and standards would
improve the efficiency of defense purchasing, the impact on
employment in companies that provide defense goods is un-
clear. If the government looks elsewhere for capital goods,
traditional defense suppliers would have to redesign their
business practices to survive against companies who have
had years of experience in minimizing costs in the commer-
cial market. On the other hand, those defense goods suppli-
ers that must rely on purchasing other defense goods to pro-
duce their products could greatly benefit from the loosening

Employment distribution in aircraft, civilian versus mititary, 1986-95

SOURCE: Aerospace Industries Association.

[In thousands) [In thousands]

500 500
Military

400 | 400

300 | ~] 300
vill

200 Clvillan 4 200

100 }- -| 100

0 n 1 1 a L 1 A 1 mr
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Monthly Labor Review August 1996 61



Computers and High-Tech Defense

Employment in high-tech defense goods-
Producing industries, selected years 1986-95
n | Gukted | search ond | ore
‘eriod missiles | navigation | onane*
Employment (thousands):
e558 | 1995 349.1 75.9
7123 | 185.1 284.3 749
449.1 98.9 187.9 50.8
a6 -72 18.6 13
-370 | 468 445 32.2
315 | 504 648 33.1

and navigation equipment, which both cut nearly half of their
work force since 1986.

Aircraft was the last of the four high-tech defense indus-
tries to start losing employment. It was not until the civil-
ian aircraft market softened, between 1989 and 1990, that
declines in employment for military purchases of aircraft
more than offset increases due to civilian purchases. (See
chart 4.) Job losses were particularly steep, starting in 1991
when both military and civilian demand for aircraft fell off.
As a result, nearly 2 in 5 jobs in aircraft were lost in a 5-year
period.

These job losses also are a focus of the recent debate on
the loss of “good” jobs from the American economy." Asa
group, production workers in these four highly unionized
industries have average hourly earnings that are 53 percent
above the average for all total private industries, and 41 per-
cent above the manufacturing average. These high wages
reflect, in part, the superior technical skills required to manu-
facture these high-tech products.

Present strategies

The current lag in some areas of technological innovation in
high-tech defense industries compared with their nondefense
private sector counterparts has prompted a reexamination of
the protocols and standards used to regulate the invention,
production, and procurement of defense products. Three ar-
eas often recognized as solutions to the current problem of
technological decline are: (1) promoting dual-use (civilian/
military) technology sharing and development, (2) reform-
ing the armed services acquisition process, and (3) expand-
ing global partnerships,"

Promoting dual-use technology. Toward the end of the
1980s, a government program was established to encourage
defense industries to spread into more commercial end-uses
so that fluctuations in defense spending would not have such
profound employment shocks. The result of this program
was the creation of the Technical Reinvestment Project (re-
investment project, hereinafter), a Department of Defense

60 Monthly Labor Review August 1996

initiative managed by the Advanced Research Projects
Agency and initially funded with nearly a half-billion dol-
lars. Funds from the reinvestment project provide start-up
money for joint ventures between defense and commercial
companies, encouraging the participants to share technologi-
cal development while creating dual-use products. Backers
of the reinvestment project point out many possible advan-
tages to dual-use technologies. They claim that high-tech
defense contractors who pair their research and development
facilities with those in companies dedicated to commercial
products could lower investment costs and reduce time spent
bringing products to the market. In addition, defense con-
tractors could take advantage of the higher productivity as-
sembly lines of the commercial sector and gain experience
designing goods with broader demand bases. These advan-
tages would, ideally, maintain a group of independent and
financially healthy defense contractors who would be even
better suppliers to the Department of Defense, if needed.
This could lead to stable or relatively smaller employment
declines even during spending slowdowns. The goal of the
Advanced Research Project Agency is to develop the rein-
vestment project’s technology into a commercialized busi-
ness so that in 5 years, it can function without further gov-
ernmental backing.”

Proponents of dual-use technologies point toward existing
accomplishments like the Navstar Global Positioning Sys-
tem, a satellite-based, multi-chip module that is technology-
controlled by the Department of Defense. The military uses
the system for guiding aircraft and troop movement, while
the private sector finds it useful to guide just about every-
thing; from private airplanes to luxury automobiles to golf
carts.“ Tt has been a success and a marketable technology
worldwide. Other reinvestment project awards have been
issued for power generation, computer simulations for medi-
cal and training purposes, rescue equipment, plastic packag-
ing, sensors, and various other endeavors.”

Not everyone is convinced of the reinvestment project’s
worth, and opponents have expressed desires to terminate
further funding. Their arguments consist of two basic prin-
ciples: that the reinvestment project is similar to corporate
welfare, and that the defense companies, because of outdated
technology and a history of adhering to strict military speci-
fications which guide their processes, are no longer able to
make worthwhile commercial technologies.” This second
argument is crucial when discussing employment by defense
goods providers. Although the intended outcome of the re-
investment project is to foster stable or growing defense in-
dustries that will be around when Department of Defense
spending returns, opponents question whether the defense
side of the partnership in the reinvestment project would re-
ceive any of the benefits from joint projects. Any monetary
benefit would have to overcome the costs associated with
retraining employees, as well as the reengineering and re-



‘Computers and High-Tech Defense

of detailed standards and testing requirements that make up
a large part of their costs of production. This could create a
system of financially stronger defense companies who could
stabilize payrolls.

New allies: expanding global partnerships. The last area
of improvement is to obtain a successful partnership with
non-U, S, companies or governments. The United States
provides many military products to other countries, but those
countries do not contribute to substantial start-up investment
costs. In the past, not sharing costs was more acceptable, as
foreign orders allowed American defense suppliers to con-
tinue production runs. With defense budgets tightening and
the U. S. government decreasingly willing to pay for start-
up costs, high-tech defense manufacturers need to share those
costs with foreign partners or risk heavy debt burdens or bank-
ruptcy. In addition to the benefits of cost sharing, U. S. de-
fense firms would gain access to the most sophisticated tech-
nologies available, wherever they may be currently produced.

Partnerships also are a way to win foreign contracts, as
was recently illustrated in the British Army’s tactical heli-
copter contract award. All three bids included the promise
of jobs for Britain, a practice called offsetting. (Britain's
defense industry employment declines have mirrored those
in the United States since the late 1980s.¥) The winning
bid was a joint venture by Britain’s Westland Helicopters
and America’s McDonnell Douglas. They were chosen for
the $3.2 billion contract, not only because of their craft’s
reputation, but on the promise by McDonnell Douglas and
its other American partners to buy $352 million worth of
British components and indirectly invest $1.6 billion in Brit-
ish industry.**

Globalization may offer new opportunities for defense con-
tractors to stay at the forefront of high technology. How-
ever, as with the earlier proposals, the employment effect of
this global trend could have mixed results for U. S. workers.
Although every contract awarded to a foreign-allied Ameri-

Footnotes

can firm will help keep the firm stable, most of the employ-
ment gains could go to the country purchasing the goods.

The three-fold approach to keep defense industries on the
cutting edge of high-tech—dual-use, procurement reform,
and partnership—are intertwined. For example, successful
dual-use technologies will require a reduction of specifica-
tions and quicker product development, and global partners
may be ideal for joint dual-use projects. A simultaneous
attack on all three fronts could create a more technically
advanced climate in the defense industries.

Implications for employment

Technical progress is no longer a guarantee of employment
strength. This has been frequently illustrated in the wave of
mergers set in motion in the 1990s. As merging firms seek
to cut costs, they often combine research and development
laboratories. Scientists and engineers, working together un-
der one roof hope to establish quicker product development
cycles, By combining brain power, defense stands a greater
chance of retaining technical dominance. On the other hand,
combined labs need fewer technicians. So, while defense
could be regaining technical clout, this alone will probably
do little to change the trend of declining employment.

THE MILITARY MIGHT CONTINUE its recent downsizing. Accord-
ing to projections, the employment outlook for the four high-
tech defense industries is dismal. Search and navigation
equipment is facing predicted annual job losses of 2.8 per-
cent through 2005, while aerospace and ordnance are ex-
pected to ease their annual losses, but shrink nonetheless.
The ability of companies in these industries to shift prod-
ucts to commercial markets, and adopt commercial prac-
tices, could temper the losses. However, total manufactur-
ing employment is predicted to fall 0.7 percent annually
through 2005, so even the commercial markets do not prom-
ise employment stability.” i)

* Richard W. Riche, Daniel E. Hecker, and John U. Burgan, “High tech-
nology today and tomorrow: a small slice of the employment pie,” Monthly
Labor Review, November 1983, pp. 50-58

2 The aircraft and parts industry constitutes sic 372, while guided mis-
siles makes up sic 376 in the Standard Industrial Classification system. See
Standard Industrial Classification Manual, 1987 (Washington, vc, Office
of Management and Budget, 1987).

3 Riche and others, “High technology,” pp. 52-53.

+ High-tech occupations are defined as: engineers and related techni-
cians, physical scientists and related technicians, computer scientists and
related occupations, and mathematical scientists and related occupations.
Data are from the Bureau of Labor Statistics, Office of Occupational Em-
ployment Statistics.

+ Data exclude ordnance and accessories because of the unavailability
of that data, Data are from the National Science Foundation/srs, Survey of
Industrial Research and Development, 1992.

62 Monthly Labor Review August 1996

® Analysis done by the Bureau of Labor Statistics, Office of Projections.

7 Ann Markusen, Peter Hall, Scott Campbell, and Sabina Deitrick, The
Rise of the Gun Belt (New York, ny, Oxford University Press, 1991), p. 30.

* Christopher Maura, “What's behind the high cost of defense?” Scho-
lastic Update, Feb. 23, 1987.

* Data are from the U. S. Budget for 1996 (Washington, vc, Executive
Office of the President, Office of Management and Budget), table 9.1. Data
are in constant fiscal year 1987 dollars.

‘© Foreign Military Sales, Foreign Military Construction Sales and Mili-
tary Assistance Facts (Washington, vc, Department of Defense, Security
Assistance Agency, September, 1994).

" See Randy E. Ilg, “The nature of employment growth,” Monthly La-
bor Review, June 1996, pp. 29-36.

Although these three points were specifically mentioned in the Clinton
Technology Report, Letter from the President (Washington, Dc, Nov. 4, 1994),
other evidence shows that these were military proposals made over several



Computers and High-Tech Defense

Ron L. Hetrick

Ron L. Heitick Is an
economist in the
Krusty Employment
Statistics, Bred of
Labor Statistics.

Employment in high-tech defense
industries in a post cold war era

Defense high-technology manufacturing industries
attempt to redefine their markets, and join partnerships,
as employment and technological innovation suffer

from decreasing defense budgets

efense spending cuts in the United States
are largely attributable to the end of the
cold war era and the disintegration of
the Soviet Union. Private sector defense con-
tractors reacted to those cuts by dismissing large
numbers of workers and expanding sales into
civilian markets. Industries that had relied
heavily on defense spending for both research
funds and sales have been forced to reevaluate
and redefine their roles in the global economy.
This article explores recent employment
trends in high-tech defense industries and im-
plications that current efforts might have for jobs
in the future.

What is high-tech defense?

There are four manufacturing industries most
often referred to as “high-tech defense.”! The
first two, aircraft and parts and guided missiles
and space vehicles, are collectively known as
the aerospace industry, which designs and con-
structs both the bodies and complex integrated
electronics and guidance systems in aircraft, mis-
siles and rockets.’ Next is the ordnance and ac-
cessories industry which designs and assembles
many of our “smart” bombs and weaponry bod-
ies. Finally, there is search and navigation equip-
ment manufacturing in which radar, sonar, in-
frared homing, and many other tracking and lo-
cating systems are designed and built. High-
tech defense industries have been defined by (1)
the number of technology workers employed as
a proportion of total employment and/or (2) the

ratio of research and development expenditures
to sales.’ As a group, these four industries had
nearly 20 percent of their employment in high-
tech occupations in 1993, as compared with 8
percent in all manufacturing industries.‘ Also,
while research and development spending as a
percentage of sales averages a little more than 4
percent for all of manufacturing, these defense
high-tech industries average 11.2 percent’

All four of the high-tech defense industries
manufactured at least 50 percent of their output
for defense purchases in 1987, the peak year for
U.S. Department of Defense expenditures. How-
ever, all four, especially aircraft, have private sec-
tor demand that is critical to their employment as
well. As time has passed, all four industries have
experienced large declines in the proportion of
their products that go to defense purchases.* The
decline in defense spending along with the pri-
vate sector recession in 1990-91 have been the
dominant factors in the employment losses expe-
rienced since 1987.

Recent history of industry employment

The Inter-Continental Ballistic Missile contract
in the 1950s caused the defense manufacturing
industries to turn their attention toward cutting-
edge technologies more broadly than before.’
Subsequent Department of Defense demands for
space-based warfare systems, via missiles and
radar, continued from the Trident Missile to the
most expensive program ever, the Strategic De-
fense Initiative (spt, or Star Wars) in the mid-

Monthly Labor Review August 1996 57



other presidential administrations, see “The Administration Agenda for
Acquisition Reform,” Volume 10 Number 39, and “bop Must Re-engineer
Its Procurement System,” Volume 10, Number 24, Defense Issues, 1995.

5 Federal Document Clearing House Congressional Testimony, Federal
Document Clearing House Inc., May 17, 1995.

TM ‘Second to None: Preserving America’s Military Advantage Through
Dual-Use Technology (National Econornic Council, National Security Coun-
cil, Office of Science and Technology Policy, February 1995), p. 17 and
Don Fuqua, “crs: U.S. Technology Made Available for World Benefit,”
Aerospace Industries Association Newsletter, May 1995, p. 3.

'S See Federal Document Clearing House Testimony and “tac Eyes Low-
Cost Chip Packaging Via arra Award,” Semiconductor Industry and Busi-
ness Survey, May 8, 195. Also see, “Lockheed Martin hopes air bag tech-
nology will bomb,” Orlando Business Journal, Apr. 7, 1995, p. 5.

© 'P. Lessard, “Battered in House, Tre Endures Harsh Reception in Senate,
“Too,” Federal Technology Report, July 6, 1995,

Andrew Pollack, “In U.S. Technology, a Gap Between Arms and vcRs,”
The New York Times, Mar. 4, 1991, section A, p. 1. Also see, David F. Noble,
“Command Performance: A Perspective on the Social and Economic Conse-
quences of Military Enterprise”, Military Enterprise and Technological
Change, Perspectives on the Human Experience (rt Press, Cambridge, Mass.,
1985), pp. 329-43.

William Scott, “Shrinking 1cem Fleet Gets Needed Upgrade, Aviation
Week and Space Technology, July 10, 1995, pp. 58-60.

18 Most of this information comes from “The Administration Agenda for
Acquisition Reform,” a prepared statement by Colleen A. Preston, deputy
undersecretary of defense for acquisition reform, to the Acquisition and'Tech-
nology Subcommittee, Senate Armed Services Committee, Apr. 6, 1995.

2 Text of the Clinton Technology Report, p. 38.

1 Defense De; Briefing, Federal News Service, June 29, 1994.

2 See, The Administration Agenda for Acquisition Reform. There ate sev-
eral commonly proposed solutions to the regulation and commercial practice
problem. First, the Defense Department needs to be able to buy goods (com-
monly available products such as light bulbs and stationery) from commer-
cial, nondefense-specific suppliers. Second, the Defense Department needs
to be able to make small Purchases (those under $100,000) without going
through endless forms and testing procedures. Finally, the Defense Depart-
ment and its private sector counterparts need to reengineer the purchasing
process, adopting commercial practices whenever appropriate,

2 The Urge to Purge: Standards Reform Approaches a Milestone, De-
Jfense Week, Oct. 30, 1995,

% Anthony Velocci, Jr., “Boeing, Labor Talks Ripple Industry wide,” Avia-
tion Week and Space Technology, Aug. 14, 1995, pp. 20-21,

33 “News Breaks,” Aviation Week and Space Technology, July 17, 1995, p.
21.

% James C. Franklin, “! ‘output and employment projections to
2005,” Monthly Labor Review, November 1996, pp. 45-59.

7 Tbid.

Where are you publishing your research?

The Monthly Labor Review will consider for publication studies of the labor force,
labor-management relations, business conditions, industry productivity, compensa-
tion, occupational safety and health, demographic trends, and other economic de-
velopments. Papers should be factual and analytical, not polemical in tone. Poten-
tial articles should be submitted to Editor-in-Chief, Monthly Labor Review, Bureau
of Labor Statistics, Washington, DC 20212-0001.

Monthly Labor Review August 1996 63



Computers and High-Tech Defense

1980s." Defense spending on major physical capital and
research and development increased 90 percent in constant
dollars from 1980 to 1987, as the push for the cutting edge
reached its peak.’

Expansion of the Strategic Defense Initiative was followed
by a post cold war era contraction in defense spending. By
1994, spending was at a level 36 percent below that of 1987.
Total shipments from the four industries to defense and ci-
vilian markets dwindled in the mid-1990s, while the economy
as a whole expanded. (See chart 1.)

Exports for high-tech defense industries, which are highly
dominated by the aerospace industry, have likewise seen a
trend inversely related to the business cycle in recent years.
Military aerospace exports had its most recent peak in 1991,
the heart of the last recession. (See chart 2.) This rise is
mostly attributable to Saudi Arabia, which increased its mili-
tary orders to more than 10 times its 1989 level during Op-
eration Desert Shield/Storm.'°

The United States, as explained later in the article, has
increasingly depended on exports to keep defense produc-
tion lines open. Recent contract victories for the United
States have come at the expense of European Economic

Community joint ventures. For example, two recent con-
tracts for fighter helicopters came up for bid in Great Brit-
ain and the Netherlands. The U. S.-made Apache won over
the Eurocopter Tiger in both contracts, because of the proven
track record and cost-benefit factors of the Apache. Due to
each country’s pressure to support its own defense industry,
U. S. defense manufacturer’s products must be far superior
to other countries’ “home-grown” alternatives before other
countries will purchase U.S. goods. As the products of the
European Economic Community mature, their replacements
will create greater competition in the European arms mar-
kets.

The trend in defense spending in the 1980s has been re-
flected by employment trends in the four high-tech defense
industries. (See table 1.) In terms of numbers of jobs, the
aerospace industry led the decline as aircraft and guided mis-
siles together shed more than 300,000 workers between 1986
and 1995, The other two high-tech industries combined lost
more than 200,000 jobs after the spending peak in 1986.
This was the result of mergers and of smaller companies
getting out of the defense business. (See chart 3.) The most
rapid rates of decline were in guided missiles and in search

constant dollars, 1982-94

Shipments in high-tech defense industries, versus total manufacturing and trade,

Defense Total manufacturing
[In thousands] [in thousands}
$ 140,000 $ 650,000
130,000 [-
600,000
120,000 | Total
manutacturing -] 550,000
110,000
| 500,000
100,000 F-
| 450,000
90,000
80,000 | 400,000
ol 1 1 1 1 ! ! 1 1 1 1 \ LI 9
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

SOURCE: Economics and Statistics Administration and Bureau of Economic Analysis, U.S. Department of Commerce.

58 Monthly Labor Review August 1996



Exports of military aerospace products in constant dollars, 1970-94

{In mitions {in millions

of dollars] of dollars]
7,000 7,000
6,000 | -| 6,000
5,000 | -| 5,000
4,000 -{ 4,000
3,000 F + 3,000
2,000 + -| 2,000
1,000 1,000

g be 1 po po rity

1970 1975 1980 1985 1990 1994

SOURCE: Aerospace Industries Association, based on data from the U.S. Department of Commerce, Intemational Trade Administration.

Indexes of employment in the four defense high-tech industies, 1986-95,
not seasonally adjusted
Index Index
[1986=1.0] [1986=1.0]
12 12
ab
Guided missiles
~ Ne
08 F Search and navigation
06
o4 |
02 |- i 4 02
| The fall of the
Berlin Wall
9 lu 1 1 1 1 \ f n \ n 0
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Monthly Labor Review August 1996 59