Is Economic Conversion Possible? by California Federation of Scientists

/* Written 12:51 am  Feb 27, 1994 by tshapin@igc.apc.org in igc:econ.conversio */
/* ---------- "Economic Conversion and Jobs" ---------- */
Southern California Federation of Scientists
3318 Colbert Avenue, Suite 200
Los Angeles, CA 90066. (310)390-3898


                  Economic Conversion and Jobs
                  ============================
                      Is it really possible?

-- by Sheldon C. Plotkin, James C. Warf, Bennett Ramberg, John 
   Bachar, Jr., and Al Yano. 

Introduction
============
        In this study we examine the question of whether the 
ongoing and troubling conversion and jobs problems of our society 
have an acceptable solution within our present economic system. 
Sweezy (Ref. 1) argues that the present market system cannot 
possibly solve the basic long term economic problems of the 
society.  However, there is nothing wrong with trying to initiate 
modest economic modifications that will ease some of the misery 
presently prevailing throughout the country during the interim 
period prior to establishing a true democratic socialist system.  
It is in this light that the following economic conversion and 
jobs programs are being presented. 

    Conversion from a military production economy to a civilian 
economy has been talked about since the end of WW II.  The 
argument used for not making the change was the alleged military 
threat from the Soviet Union.  Given the waste of  human talent 
and national resources of the military programs over the past 
forty plus years, the needed economic conversion of  the nation's 
economy is long overdue.  Presumably, now that the Cold War has 
ended, the need for economic conversion will now be recognized by 
the majority of the country, and a real program might begin 
shortly.  One can argue just exactly how much the political right 
does not agree, but that point is not worth considering here.  
What is of crucial importance is exactly how the economy should 
be converted, given the large fraction of that economy currently 
dependent on military spending. 

        In anticipation of the outcome of this analysis, it needs 
to be kept in mind that conversion will undoubtedly necessitate a 
certain amount of unemployment for the present military system 
workers because many of the converted jobs will be taken by 
people presently unemployed.  In order to accommodate those put 
out of work in the conversion process, a jobs program will be 
required.  Of course, providing work for only unemployed military 
workers is unacceptable, so a jobs program needs implementation 
for the entire labor force.  

        It is noted that while the debt situation is not 
particularly good, i.e. the paying of about 15% of the federal 
budget for debt interest, it is far less a  burden than the 
unemployment, homelessness, and illness created by present 
economic conditions.  MR editors pointed out some months ago 
(Ref. 2) that the only solution to debt reduction that won't have 
negative economic repercussions on the society is the institution 
of a wealth tax.  While there is no argument from us that this is 
the best solution, the point of view here is that only when the 
economy has been transformed to a reasonably healthy condition 
should we even begin to consider the debt problem, i.e. the 
taking of money out of the normal federal income to pay off the 
debt as the Clinton administration has indicated it desires. 

       There also must be no illusions regarding the 
practical aspect of what is being proposed here.  It is clear 
that there can never be any real solutions to the US economic 
problems within the present political structure dominated by the 
wealthiest group in the country.  However, as has been 
demonstrated in the past, there is a dynamic quality to the U.S. 
society that triggers substantial revolts at times, e.g. income 
tax initiation, New Deal programs, Social Security, etc.  It 
seems clear that such dynamic forces might possibly  develop, so 
the proposed programs here might well see the "light of day" in 
the not too distant future.  Thus existing  impediments for 
initiation of the following proposed economic conversion and jobs 
programs are fully recognized.  
        
Economic Conversion 
===================
       Of the abundance of material written on economic 
conversion, much refers to job training and employment transfer 
assistance programs.  The fact of the matter, without going into 
detail, is  that the economy cannot be converted by retraining 
people for jobs that only exist in the policy makers mind's eye.  
Another minuscule effort is the finding of a few military 
projects that have some nonmilitary application, but these cannot 
possibly provide the jobs needed for conversion.  Because the 
required jobs switch is huge, perhaps four million or so, a very 
large conversion program is required.  One question here is 
exactly how large the program should be and exactly how can it be 
established with adequate size, ease, and timeliness.  

        The conversion efforts of Seymour Melman (Ref. 3) and  
the late Congressman Ted Weiss from New York resulted in the 
submission of the Weiss Bills for Economic Conversion over a 
period of many years.  The key feature of these bills was the 
establishing of an "alternate use committee" in every company of 
more than one hundred employees receiving military funding.  
These committees, in fact, were to actually develop precise 
blueprints on how the company would be converted if the military 
contract was either canceled or not renewed.  This approach 
seemed generally acceptable to the peace community for all those 
years with hardly any analytical thought being given to the 
concept.  In fact, an attempt was once made by a local of the 
United Auto Workers, the Center for Economic Conversion, and the 
Southern California Federation of Scientists to specify uses for 
the McDonnell Douglas idle aircraft plant facilities in Long 
Beach, California, the purpose being to employ laid off union 
workers.  

        It became quite obvious during the course of this effort 
that "alternate use committees" were nonsense.  People in one 
military- supported plant cannot possibly plan for that plant's 
future without detailed knowledge of what government funding will 
be available and what plans there are for all the other military-
supported companies.  The one major example of "alternate use 
committee" efforts was the Lucas Aerospace workers in England 
(Ref. 4,Chap. 4).  Of the multitude of possible products (150 in 
total) which could be manufacturered under conversion, there was 
one product or "big ticket item" that was to employ about 80% of 
the Lucas workers.  That one product was a hybrid automobile, 
i.e. a combination of electric and gasoline energy sources, which 
would be a transition vehicle prior to the wide spread use of 
electric cars in the future.  Unfortunately, the Lucas workers 
did not perform an engineering analysis which only takes a few 
minutes by an engineer acquainted with the fundamentals.  Results 
would have shown the Lucas worker- planners that this hybrid 
vehicle was not a viable engineering/economic project, i.e. it 
would not  serve a need and could not possibly be sold in any 
quantity to the general public.  Additionally, something the 
Lucas workers never knew was that a corporate officer at TRW in 
Redondo Beach, California had the same idea at the same time and 
actually pursued the concept with corporate funding through the 
initial planning stages before realizing the idea was unsound.  

        One conclusion here is that profitable new products are 
very difficult to determine in general and cannot be initiated 
with confidence without knowledge far beyond that available 
within any one particular company.  In other words, the gross 
planning for economic conversion cannot be performed adequately 
at a local level but must be done at a high government level, 
probably national.  It is only the implementation of projects 
that should be carried out by the workers at the local level.  In 
fact, much experience has shown that workers have to do the 
implementation planning in order to make certain the fabrication 
of products or the development programs are carried out properly.  
The Weiss Bills, while a noble effort, were basically unsound, 
the major aspect being that overall economic planning at the 
federal level is an absolute necessity for any major change in 
economic activity and a jobs program was required to get worker 
support for conversion.  There are numerous examples for this, 
e.g. US military conversion for WW II and the Japanese economic 
development since WW II.  Changes affecting the entire country 
have to be planned at the national level and it is best that 
workers determine how to actually do the work.. 

        Such overall planning at the national level requires the 
use of experts with proven experience in such matters plus an 
organizational structure that provides safeguards assuring the 
highest attainable quality of planning. Although the behavior of 
senior government policy makers very often is a serious problem, 
they do actually perform in an appropriate manner on occasion and 
can certainly do so more often with active grassroots oversight.  
The problem for us then is how do we provide overall national 
planning with local implementation?  Fortunately the answer to 
this question is much easier to come by than anticipated (Ref. 
5).  
        All that is necessary is to simply use the present 
federal contracting procedures, whereby each government 
department releases RFPs (Requests For Proposal) for specified 
programs as well as consider unsolicited proposals within their 
areas of responsibility and budget.  These agencies have always 
had programs they believe to be worthwhile and would like to 
carry out but have not had the supporting funds necessary to 
implement those extra projects.  The local implementation is 
automatically accounted for in this normal government agency RFP 
process, because the proposals are generated locally.  All that 
is necessary to accomplish our economic conversion goals then is 
to simply transfer the money from the Department of Defense (DOD) 
budget and the nuclear bomb development part of the Department of 
Energy (DOE) budget to other government agencies, e.g. National 
Institute of Health, National Science Foundation, non-nuclear 
part of DOE, Department of Transportation, Health, Education & 
Welfare,  Department of Commerce, and other government entities.  
The point to be emphasized here is that the total amount of money 
spent by the federal government must be the same after conversion 
as before to maintain economic stability, the converted projects 
being work that the society needs anyway.  

        A reasonable size for the U.S. military/industrial 
establishment would be dictated by the goal of merely defending 
the U.S., and this can easily be done by such an establishment 
one-third its  present size (Ref. 6).  As to the question of how 
quickly such conversion can be done, the transference of 10% of 
DOD's funds per year for ten years or 20% per year for five years 
would yield a military establishment one-third the present size 
at the end of the ten or five year period, respectively.  Such a 
slow transition minimizes dislocations and inconveniences, while 
simultaneously accomplishing the goal of converting the economy 
from military to non-military in a feasible and straightforward 
manner.  
        Of concern next is how many jobs will be provided in the 
conversion, i.e. can we expect to re-employ not only all those 
whose military related jobs are eliminated but also a significant 
fraction of those presently unemployed?  An analysis of the 
present military funding procedures discussed below as well as 
other studies reveals that one can expect a 50% to 100% increase 
in the total number of  funded jobs after conversion (Ref. 7 plus 
details below).  At present the total number of people supported 
by military expenditures is about six million (Ref. 8).  The 
reduction of military and military-supported personnel will be 
about four million with an increase in nonmilitary related 
employment of at least six million, assuming a 50% increase for 
the total number of nonmilitary jobs.  A major realistic point 
here is that many of the six million re-employed will be people 
who were previously unemployed, and many of the previous 
military- supported workers would become unemployed in the 
conversion process.  Because it is necessary to initiate a jobs 
program for these previous military workers that are now 
unemployed, it is then required to provide a jobs program for 
everyone.  Needless to say, the country needs such a program 
anyway regardless of the economic conversion requirements, so the 
goal of employment for all need not be belabored further, 
recognizing in passing that a multitude of interrelated social 
problems must be addressed in the process. 

Jobs Program
============
        When considering a jobs program, the initial question is 
how many added jobs will result from the economic-conversion 
efforts and, therefore, how large must a jobs program actually 
be. It was pointed out above that a 50% to 100% increase can be 
expected, but the rationale was left for this section.  A 
prevalent error made in economic conversion circles in the past 
has been that of taking military contract dollars and dividing by 
the number of people to be employed by the program in order to 
obtain the dollars per job.  This usually comes out to be between 
$200K and $250K per job which indicates erroneously that if the 
economy could be converted, at least a factor of five to ten 
times increase in the number of jobs could be obtained.  This 
analysis is in error because the "indirect" expenses being paid 
out of the military contracts are not taken into account.  By 
including the overhead personnel (secretaries, corporate 
executives, supervisors, personnel department, contracting 
department, reproduction facilities, security guards, etc.) , 
rent, phones, in-house Research & Development, contingency funds, 
operating expenses, and the usual 8% profit, the final number of 
extra jobs that one can expect from economic conversion will be 
only twofold at most and probably something more like one and a 
half times.  This job increase basically reflects lower salaries 
for the personnel in the converted jobs, e.g. $35K to $40K per 
year rather than the $60K to $70K per year average for military 
workers.  The economic conversion conclusion here of 50% to 100% 
increase in the number of jobs is identical to that from Ref. 7, 
although the basic analyses are entirely different.  

        Referring back to our specified two-thirds reduction of 
the military from six million people to about two million (Ref. 
8), the number of new jobs would be about six million, i.e. 150% 
of  four million, with expectations that a large fraction of the 
four million converted military workers would be re-employed in 
the converted projects.  An increase in two million to four 
million jobs in the process, while certainly not to be held in 
disdain, hardly approaches the levels actually required in the 
present economy.  Additionally, transferring some people into the 
unemployed ranks while transferring others out is hardly 
acceptable, because it is not a solution. 

        Thus at this point in the analysis we need to know how 
many jobs are really required, postponing till later exactly what 
we mean by the term "job", i.e. what people are going to do for 
pay.  The official 1993 number of approximately 7% with a working 
force of 120M is much too low.  One must factor in an estimate 
for how much larger the unemployment ranks really are by 
including those who have actually given up, all those on welfare, 
and those working involuntarily on only a part time basis.  A 
final number is much more likely to be 15M to 16M (Ref. 9 and 
Fig. 1), of which about 2M to 3M will be paid for out of the 
economic conversion programs.  Additionally, there will generally 
be about 2M to 3M people in transition between jobs at any one 
time.  Thus the final number of jobs required from a WPA-type 
jobs program, referring to the Works Progress Administration 
program of the 1930s, will be about 10M in addition to those 
extra jobs provided in the economic conversion process.. 

        Salaries for these jobs will vary depending upon the job 
and the personal needs, e.g. a single person might be paid a 
lesser amount as compared with another supporting a family who 
might warrant a higher salary.  Regardless of such details, the 
point for this study is that an approximate overall average 
salary for living adequately under present economic conditions 
would be about $30K per job.  The results are, therefore, a total 
jobs program of $300B is required besides the economic conversion 
program specified above, the basic problem now being to specify 
the source of this amount of money. 

        At the outset, we note that the total $300B does not have 
to be raised because of the economic multiplier effect which was 
first postulated by Kahn in 1931 (Ref. 10) and used by Keynes in  
1936 (Ref. 11).  Each worker making $30K pays about 20% in 
federal income tax, leaving an amount, "x", after savings of 
perhaps 60% to 75% to be spent.  Then of that 60% to 75% perhaps 
20% will also be paid back to the government in personal income 
taxes with 60% to 75% of the remainder spent again, etc.  Taking 
the sum of the infinite series [1/(1-x)] in this specific 
example, i.e. the overall multiplication factor, the result is a 
factor between 2.5 and 4.0.  What this implies is that 50% to 80% 
of the $300B being spent by the federal government for a jobs 
program actually comes back to the government in due course.  
Keynes himself used a  multiplication factor of 4.0 many years 
ago (Ref. 11) and a value of 3.5 was specified in Ref. 7 from a 
recent Los Angeles study.  The number we need here is only an 
approximate value  because a firm number can only be determined 
after implementation of the program.  Using a value of 3.0 seems 
reasonable, and under this assumption approximately 60% of the 
jobs program dollar outlay actually returns to the federal 
coffers, with only about 40% left to be "invested" by the federal 
government in the massive WPA-type jobs program which actually 
revitalizes the economy in the process.  The government agency 
RFP-type work management process specified above could also be 
used here as part of the WPA-type jobs program, but the money 
"invested" has to be in addition to that required for economic 
conversion.  Thus for a $300B jobs program , only about $120B 
will actually have to be raised in the overall picture, the 
question then being what the source of that money could possibly 
be. 

Funding
=======
        Utilizing the basic Watergate analysis philosophy of 
"following the money", increasing federal income revenue means 
looking closely at where the large caches of money are in the 
U.S. -- namely wealthy people and large corporations.  Initially 
it seems obvious that raising the corporation profit tax from the 
present 34% to the old pre-Reagan/Bush value of 50%, which was in 
effect since the mid thirties will raise about $50B (Ref. 12).  
So far so good; $50B down and only about $70B to go.  

        Next we look at what the wealthiest 1% of the population 
have actually paid in federal income taxes during the Reagan/Bush 
era, i.e. people having a taxable income of over $600K per year 
(Fig. 2).  We see that in 1991 this group saved $84B as compared 
with 1977 using the pre-Reagan/Bush income tax percentages (Fig. 
3).  The authors, using Refs. 12 and 13, made a "ballpark" 
calculation which resulted in an indicated federal income tax 
savings for the wealthiest 1% of $90B comparing 1981 with 1991.  
The average tax savings apply to the super-rich group as a whole 
so an increase in income tax revenue for a jobs program could 
certainly be made progressive with the more wealthy of this 
wealthiest 1% group paying a higher tax rate.  Considerations 
here are not to increase this group's taxes but merely require 
that they pay what used to be considered their fair share.  The 
additional $84B (or $90B) so acquired is somewhat larger than our 
goal of $70B.  Obviously, the money needed to fund a WPA-type 
jobs program to provide full employment and revive the country's 
economic health by means of increasing consumer demand or 
purchasing power is readily available.  In addition to the 
increased federal income from the super-wealthy, there is also 
the saving from elimination of the Aid to Families with Dependent 
Children, relief and unemployment programs which was at least 
$15B in 1990 (Ref. 14).  Needless to say, additional sources 
include reasonable estate or inheritance taxes and/or a wealth 
tax on interest or unearned income. 

        As for the possible need for capital to increase 
production facilities because of an increase in consumer demand, 
any such new capitalization required would only be after the idle 
plant facilities had been placed back in production.  Any new 
capital needed should be readily available from present surplus 
capital that now has difficulty being invested in profitable 
ventures.  Anticipating that at some point in the future many of 
the directly useful projects will have been completed (Ref. 15), 
there is then the requirement of what work the then-surplus 
workers will perform.  We thus have to address exactly what our 
definition of the word "job" is going to be. 

Job Definition
==============
        After the country has established a viable transportation 
system serving the urban areas and the entire country, has built 
all the housing, schools and hospitals required, has 
reestablished adequate urban infrastructure, and has automated 
most assembly line production facilities, (Ref. 15) , etc., there 
is the possibility that much needed "work" in the traditional 
sense will have been done.  It  may be that we do not need all 
the engineers and scientists used by the military to provide the 
basic technical goods and services required for a satisfactory 
country-wide standard of living, although there is no limit to 
the useful research & development efforts these scientists and 
engineers can be engaged in.  In the meantime, we have many 
potential educators and artists performing mundane service tasks 
today that can easily be eliminated tomorrow if we choose to do 
so, utilizing these talented people to enhance the general 
culture.  Reviewing the types of efforts funded under WPA (Works 
Progress Administration) during the 1930s provides the 
realization that the term "work" can be broadened quite 
effectively.  

        WPA-type "jobs" during the 30s included support for the 
compilation of many mathematical tables, the performance of 
public concerts, the painting of murals on public edifices, 
Civilian Conservation Corps work, enhanced educational programs 
at elementary and secondary schools, and the creation of many 
construction programs, to name some examples.  Needless to say, 
the support for cultural activities can certainly be considered 
"jobs" for the people so employed because the activity enhances 
the quality of life for the society as a whole.  Such things as 
child care facilities in the work place as well as outside the 
workplace near homes or at shopping mauls provides useful 
employment dedicated to taking care of children.  There's also 
nothing wrong with paying parents to raise their children, for 
who's to deny that this is very hard and essential work much of 
the time?  The point to be made is that the term "jobs" needs to 
be used in the broadest sense.  Services and cultural activities 
traditionally not considered to be work ought to be included.  It 
seems clear that an increase in the workforce would bring jobs to 
many women and minority people now unemployed.  

        Another type of activity that is not generally considered 
a job in the traditional sense is that of being a student.  We 
all know that if a student does his/her work properly, a great 
deal of time and effort is required.  A prevailing view adopted 
in some other societies, basic to our philosophy for public 
schools, is that all education of the people adds to the general 
welfare and, therefore, should be supported by the society as a 
whole by means of the government.  sending some of the unemployed 
to school for compensatory education because of past deficiencies 
or for advanced degrees benefits the entire nation.  Such student 
support entails not only the institutional costs but also the 
personal living expenses as well.  Perhaps our experience here in 
the U.S. with the GI Bill program after WWII provides an 
understanding of the significant impact the education of our 
people can have on the country as a whole.  In fact, a prevalent 
viewpoint is that all  education should be 100% supported by 
public funding in the context of the proposed programs here.   

Basic Obstacles
===============
        It can be argued quite effectively that the fundamental 
human problem for humans is overpopulation of the planet.  It is 
also a fact that in terms of squandering natural resources, U.S. 
citizens are by far the worst because they consume about one-
third of the total resources, whereas they only number about 6% 
of the world's population.  So it is most important that the U.S. 
population reduce its wasteful use of natural resources.  The 
present trend toward zero growth, conservation, and more 
responsible environmental behavior may eventually provide for the 
necessary population reduction.  In the meantime, the solution of  
the economic problems dealt with above is necessary regardless of 
any progress in population control. 

        In view of the fundamental thrust of the proposals above, 
namely a shift in wealth in large measure from the super-rich to 
the unemployed, the reaction of the wealthy section of our 
society must be confronted.  We all saw what happened when 
President Clinton tried to institute a minuscule $16B jobs 
program, when in reality the real need was for a program of $300B 
magnitude.  Obviously, the super-rich will fight by whatever 
means they have at their disposal, especially their inordinate 
influence over legislators.  Nothing, therefore, can be expected 
to really happen in a practical sense  until the stranglehold the 
rich have over elected officials is broken.  Simply by funding 
short political campaigns from public funds, by highly 
publicizing the issues and candidate positions through the media,  
and by precluding any private contributions to any political 
campaign  will do an enormous amount to breaking the stranglehold 
held by the super rich.  All we have to do is do it! 
        

References
==========
1.      Sweezy, Paul M., "Socialism: Legacy and Renewal", Monthly 
        Review, Vol. 44, No. 8, pp. 1-9, January, 1993. 

2.      Sweezy, P.M. and Magdoff, H., "Notes from the Editors",  
        Monthly Review, Vol. 44, No. 9, February, 1993. 

3.      Melman, Seymour, The Demilitarized Society, Harvest 
        House, Montreal, 1988. 

4.      Cooley, Mike, Architect of Bee?, South End Press, Boston, 
        1980. 

5.      Williams, Theodore, personal communication, (Mr. Williams 
        is the CEO of Bell Industries whose corporate offices are 
        in Los Angeles and is also a member of the Southern 
        California Federation of Scientists.) 

6.      Center for Defense Information, The Defense Monitor, Vol. 
        XXI, No. 4, 1992. 

7.      Institute of Electrical and Electronic Engineers, 
        "Conversion Special Issue", Spectrum,, December, 1992. 

8.      Wiesner, James B. et al., "Ending Overkill", Bulletin of 
        Atomic Scientists, p.23, March, 1993. 

9.      Amott, Terisa, Caught in the Crisis, Women and the U.S. 
        Economy Today, Cornerstone Books, Monthly Review Press, 
        1993. 

10.     Kahn, R., Selected Essays on Employment and Growth,, 
        Cambridge University Press,   Cambridge, 1972. 

11.     Keynes, J.M., The General Theory of Employment, Interest, 
        and Money, Macmillan, London, 1936. 

12.     The 1992 Information Please Almanac, Houghton Mifflin 
        Company, Boston. 

13.     The 1982 Information Please Almanac, Houghton Mifflin 
        Company, Boston. 

14.     1992 Statistical Abstracts of the U.S. 

15.     Gorz, Andre, Farewell to the Working Class, South End 
        Press, Boston, 1982. 


[The figures referred to have been changed to tables for this
 email document.]
= = = = =
Figure 1. Reprinted from Ref.9 (Fig. 3-4)

Official Unemployment and Real Unemployment Rates
  by Race-Ethnicicity and Sex, 1991.
  (all figures have been estimated from a graph)

White Men
 Offical              6%  
 Real                 9%

African American Men 
 Official            13%
 Real                18%

White Women
 Official             5%
 Real                11%

African American Women
 Official            12%
 Real                20%
= = = = =
Figure 2. Reprinted from Ref. 9 (Fig. 2-4)
 [ These numbers appeared on a bar graph.]
Average Income for Family Income groups, 1992. In 1992 dollars.

Family Income Groups
Bottom 20%     $8,130
2nd    20%    $20,090
Mid    20%    $31,970
4th    20%    $47,690
Next   10%    $65,700
Next    5%    $84,700
Next    4%   $132,400
Top     1%   $676,000
= = = = =
Figure 3.
 [ These numbers appeared on a bar graph.]
Changes in Tax Payments Since 1977
   (in billions of dollars)

Family Income Groups
Bottom 20%   -0.8
2nd    20%   +5.0
Mid    20%   +5.8
4th    20%   +2.4
Next   10%   +1.6
Next    5%   +1.2
Next    4%   +7.0
Top     1%  -83.7

The original source is dated 1991, meaning 1991 tax payments
versus 1977 tax payments and not cumulative values.
= = = = =  
[Please send copies of your comments to tshapin@igc.apc.org]
     - - end - -