/* 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 - -