Can taxpayers count on a "peace dividend"?

• Author: Melman, Seymour

If the cold war is over, why aren't factories, military bases, and laboratories converting to civilian work? What's going on is a permanent war economy in which military activity is large and continuous, and the military output is treated as an ordinary economic product. How did a national consensus that favored defense, as during World War II, get transformed into a permanent war economy?

A good place to start is with NSC-68, "The Report by the Secretaries of State and Defense on United States Objectives and Programs for National Security," April 7, 1950. In its economic conclusions, this policy paper - often attributed to Paul Nitze - concluded that ". . . one of the most significant lessons of our World War II experience was that the American economy, when it operates at a level approaching full efficiency, can provide enormous resources for purposes other than civilian consumption while simultaneously providing a high standard of living. After allowing for price changes, personal consumption expenditures rose by about one-fifth between 1939 and 1949, even though the economy had in the meantime increased the amount of resources going into government use by $60-65,000,000,000 (in 1939 prices)."

This memorandum showed that, during World War II, the U.S. had guns and butter. It also drew the unwarranted inference that the American five-year experience with World War II could be a generalized relationship - that the economy could deliver both guns and butter continuously.

Thereafter, an ongoing process of military-technical expansion was set in motion. Entire new industries were established to manufacture large aircraft, nuclear-powered submarines, short- and intercontinental-range missiles, electronic laboratories and factories to multiply the lethality of available and projected weapons, and, finally, a network of laboratories and connections that reaches into every major university.

Dwight D. Eisenhower implemented the major recommendations of NSC-68 and so participated in the enlargement of military budgets and the construction of a vast military-industrial network. By the completion of his two terms as president, however, he was wary of the declared goals of his successor, John F. Kennedy, to eliminate a "missile gap" vis a vis the Soviets that Eisenhower knew to be non-existent. At the same time, he was indignant at the implications of Kennedy's election campaign that Eisenhower, the old general, was not looking after the U.S.'s military security properly.

Eisenhower intimates have indicated that he was wary of the unlimited ambitions of his "brother officers" and used the plea of fiscal responsibility to hold their ambitions in check. All that is crucial background for understanding his famous Farewell Address, delivered from the White House on the evening of Feb. 6, 1961, just before the Kennedy inauguration. It was, in effect, a warning to the nation about the policies of his successor. In this address, Eisenhower noted the following:

". . . We annually spend on military security more than the net income of all United States corporations.

"This conjunction of an immense military Establishment and a large arms industry is new in the American experience. The total influence - economic, political, even spiritual - is felt in every city, every statehouse, every office of the Federal Government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources, and livelihood are all involved; so is the very structure of our society.

"In the councils of govemment we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

"We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. . . .

". . . [We] must avoid the impulse to live only for today, plundering for our own ease and convenience the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow.

Kennedy did exactly what Eisenhower wamed against, greatly expanding the military and its allied industrial and research establishment. With Robert McNamara in charge, die...