Seymour Melman: A Conversation on the Economics of Disarmament

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Following Communism’s collapse in eastern Europe and changes in the Soviet Union, this episode of World of Ideas considered the fate of the 26 million Americans who depended on the defense budget for their livelihood. Seymour Melman, chairman of the National Commission for Economic Conversion and Disarmament, talked with Bill Moyers about ways to convert military spending to economic redevelopment.


BILL MOYERS: [voice-over] Twenty-six million Americans depend on the defense budget for their livelihood. With Communism’s collapse in eastern Europe and changes in the Soviet Union, the Pentagon needs less money for the Cold War. Many defense workers fear their jobs may be the price for peace.

Seymour Melman says that fear is not justified if we plan for the changes. Dr. Melman is chairman of the National Commission for Economic Conversion and Disarmament. The commission is studying ways to convert military spending to economic redevelopment. Dr. Melman has written nine books, including, most recently, Profits Without Production and The Demilitarized Society. He is professor emeritus of industrial engineering at Columbia University in New York, where we talked.

[interviewing] Here’s the headline on a recent Texas monthly magazine, about the largest defense contractor in Fort Worth: “Can General Dynamics Survive Peace?” What do you read from that?

SEYMOUR MELMAN: Well, I read the doubt that some people have that the factories, laboratories, people, machinery in the General Dynamics plant could be used for civilian, peaceful purposes. We might add another to that: could the top management of General Dynamics survive in that environment? Let’s leave that one to the end. I’m quite sure that the production workers, most of the managers and by far most of the engineers could be turned to doing useful work in a civilian environment.

BILL MOYERS: See, no one has really told them that, thought, and in addition to the doubt, there is the fear. General Dynamics puts $1 billion a year into the payroll of Fort Worth. That’s about a third of the civilian wages.

SEYMOUR MELMAN: There’s no question that everyone on the payroll of these firms has become accustomed to that kind of environment, and indeed, that customary position has been reinforced by the ideology taught by our economists and others who have operated on the assumption that a dollar spent is a dollar spent, and it doesn’t matter what for. As a matter of fact, from the standpoint of the community as a whole, the widest community, it matters very, very much if the money is spent and yields new wealth that’s useful for consumption or further production or if the money is spent and yields goods and services that are not useful for those ordinary purposes.

Now, General Dynamics, like the other military-serving firms, have become accustomed to producing the military goods. When those are no longer required, they could be turned to doing civilian work, but only through a process of deliberate planning, redesigning and retraining.

BILL MOYERS: But the people in Texas with whom I’ve talked, my home state, say, “You know, a job is a job is a job.” And last year, the Pentagon awarded $29 billion, $29 billion to contractors in Texas alone. And these people say, “That’s a job for me, and as I spend the money, that money circulates.” And in fact, the defense spending part of the Texas economy is the only part of the Texas economy that’s growing right now.

SEYMOUR MELMAN: There’s no question that what you say is true. But to elaborate on its meaning, we have to note that those funds received by the people for doing their work represent claims on a stock of goods and services produced by other people. These working for the military account produce nothing that goes on the shelf of the department store.

BILL MOYERS: Once you’ve built an F-16, it doesn’t get bought by the general public. It doesn’t produce any more jobs.

SEYMOUR MELMAN: You can’t transport it, you can’t wear it, you can’t eat it and you can’t live in it. And you can’t make anything with it. Now, some of this has been lost from view in the society as a whole, as foreign countries have been prepared to ship in goods, essentially on spec, on loan, and that has been a form of subsidy to the American economy and to its consumption.

Think for a moment. What would a household look like if all the foreign-made artifacts were removed? The radios, the TV set, the VCR, a lot of the household equipment, a third of the cars. So an important part of the American level of living has, willy-nilly, become an item of subsidy from foreign countries, which can’t go on forever.

BILL MOYERS: But they’re getting the consumer goods they want, they’re getting a good radio, they’re getting a good stereo, they’re getting a-

SEYMOUR MELMAN: For the individual, there’s no question. They are making it, in the terms that you describe. But for the economy as a whole, the thing becomes very bad news, as production competence has been seriously diminished in the United States.
The United States used to be a first-rate industrial economy. Productivity used to grow fast enough so as to offset wages increases therein and other costs.

BILL MOYERS: Now, that’s very important, isn’t it, that we have to increase our productivity to cover the cost of additional wages. We have not been doing that of late.

SEYMOUR MELMAN: That’s been the American success story, the ability to do that. That came to a halt during the 1970s. And since then, the American wages have become median wages among countries of the world.

BILL MOYERS: There are eight other nations, in fact, whose industrial wages are higher than ours.

SEYMOUR MELMAN: That’s correct. And, they are doing it because, just as we once did in the United States, by having rates of productivity growth that offset those wages. So there’s been a collapse of productivity growth. There’s been a collapse, collaterally, of research and development on civilian account. There’s been a diminished competence in the ability to organize work. All these things, taken together, have finally resulted in a diminished level of living for important parts of American society. For my students, there is now a prospect which their counterparts 30 years ago never had to face. The new prospect is that their level of living will be lower than that of their parents. Now, that’s a second rate economy, but we’re headed to third-rate, where third-rate means, such a diminution in production competence in the machinery producing industries -oh, they’re industries that almost no one sees or knows about -that the country will no longer have the ability to restore the production capability that is gone.

BILL MOYERS: But surely you wouldn’t lay all of these ills at the door of the Pentagon, would you? I mean, here we are, spending really only 6.5 percent of our gross national product on the defense industry.

SEYMOUR MELMAN: First of all, the arithmetic is right. The military budget is about six to seven percent of what is called the money-valued goods and services produced. But included in that six to seven percent is about the wages and salaries to 30 percent of the country’s engineers and scientists.

BILL MOYERS: So that 6.5 percent consumes 30 percent of the engineering and scientific talent?

SEYMOUR MELMAN: Right. Right. And, it includes three-quarters of the federal government’s spending on research and development.

BILL MOYERS: Goes to the military.

SEYMOUR MELMAN: Right. Furthermore, as-there’s a cumulative effect, so that by the mid-1980s, the Pentagon owned machines -mind you, a tank is a machine -and other such equipments, they owned machinery whose money value was about 46 percent as much as the money value of all U.S. civilian industries’ equipment. So we have concentrated a massive proportion of qualitatively important materials on the military side.

There’s another way to look at this. From the controller of the Department of Defense, we learn that the cumulative budgets of the Pentagon from 1947 to 1989, and measured in dollars of 1982 purchasing power, amounted to $8.2 trillion dollars. Well, that immense magnitude takes on meaning if you compare it to the money value of the national wealth of the United States, as represented by the wealth, the money value of all industry, plant and facilities, and the whole of the infrastructure of American society, buildings, schools, homes, et cetera, which in 1982, for comparison purposes, amounted to $7.3 trillion. In a word, we have used up, cumulatively, on military account, a quantity of capital-type resources, meaning fixed or working capital, that is more than sufficient to replace the largest part of what is man-made on the surface of the United States.

Hence, there’s no mystery in the shabby railroads, the broken bridges, the unpaved streets, the wrecked buildings, the absence of adequate housing, the aging character of the industrial equipment. Finally, finally, and with allowance for diverse money-spending channels that go on in this economy, the final net effect of this kind of depletion is represented by the physical preemption of resources that has taken place on military account.

BILL MOYERS: Do you think there is a significant correlation between the fact that the United States, since the end of the Second World War, has been spent something a little over $4 trillion on its military establishment-

SEYMOUR MELMAN: That’s in current dollars.

BILL MOYERS: -in current dollars, whereas Germany and Japan have spent just a fraction of that?

SEYMOUR MELMAN: I’ve given some attention to that, and in several books have pointed out that the concentration of research and development talent on the military in the U.S. as against the nominal outlays for those purposes in Germany and Japan, goes very far to explain the technological innovation in the civilian economy that has gone on there, and is not available here.

BILL MOYERS: One could argue that the United States had to pay a price in these last 40 years, 45 years, in order to arrive at what we see today, which is a revolution in the Communist world.

SEYMOUR MELMAN: You can’t explain major parts of the U.S. arsenal and its cost in the terms that you postulated. Thus, we not only have a nuclear arsenal, we have an overkill system. We can destroy every Soviet city and industrial center with a population of 100,000 or more about 40 times over. Now, on military grounds, that makes no sense whatever. On human grounds, it’s idiotic. It does make good sense, however, if you are a top manager in the Pentagon and you’re eager to maintain and enlarge your decision power as a top manager. Then you keep the factories going. Therefore, what happened in the Soviet Union happened for Soviet reasons. The collapse of their economy happened for their reasons. It was not stage-managed by anyone in the Pentagon or the U.S. White House.

BILL MOYERS: As you talk, I keep thinking of-in fact, don’t think of me for the moment as a journalist. Think of me as one of the nine million Americans who work for the Pentagon or one of the 26 million Americans who depend in one way or the other on Pentagon spending. And I’m listening to Seymour Melman talk, and I think: ”What’s going to happen to me? How am I going to make a living if we do what he is talking about, if we stop spending this capital for our defense industry?”

SEYMOUR MELMAN: Well, following the conventional wisdom of our country, you and likeminded people have been afraid of peace. But that’s now being replaced swiftly by a fear of depression. That is to say, if the downturn and near-disappearance of the Cold War means no longer having a justification for the previous military spending, then if that means job loss on a large scale, that’s fear of depression. Now, that fear is legitimate in the present scene, as every administration from that of Jack Kennedy to the present day has refused to back proposed legislation to do orderly planning for converting from a military to a civilian economy.
But that will no longer be done in this easy fashion, with the accompanying promise that there’s always more money from the Pentagon, because there will very likely be less money from the Pentagon. And the reason is that there are very large forces now going into motion that weren’t there before, that will put powerful pressure for cutting down the Pentagon’s largess.
The mayors of the country, for example, are all of them on the firing line, confronted with problems that are insuperable with the resources that they now have. So they press to the last man in favor of a large peace dividend, which means concretely moving the resources from the military to civilian works.

BILL MOYERS: So you want to spend that dividend on-

SEYMOUR MELMAN: I would spend it on publicly supported housing, to make up for the part of the housing market that’s not supplied by private investment. I would spend it on what has long been a public responsibility, namely the care of the mentally ill. And I would see it spent on roads, on capital investment in railroads, on improving the airports, on taking care of the water supply. New York City today is approaching 10 breaks in its water mains a week. Why, a few weeks ago, we had a near miss with a failure that nearly cut off water to the whole city. That’s not a viable community.

BILL MOYERS: You remind me of 1969, when Lyndon Johnson appointed a cabinet-level committee to decide how to spend the $39 billion annual peace dividend that was coming from the end of the Vietnam war, but when the war was over, the dividend never materialized. What makes you think this time it’s going to be different?

SEYMOUR MELMAN: The war was over many years after Lyndon Johnson had that proposal, which was probably his last official act before leaving the White House. The war was dragged on, and the political energies that were sunk into bringing that war to an end finally were at a point of such exhaustion that the idea of a peace dividend, et cetera, had faded from view. Remember, that was then by 1972 and even dragging on to ’75.

The present scene is different in at least two respects. Number one, the domestic decay is now very far advanced. You need no technical monographs to see the decay in industry, the decay in housing, the homelessness. There are more homeless people on the streets right now on Broadway, where we are sitting, than there were during the Great Depression. I certify to that because I saw the Great Depression.

Well, there’s a second factor today. The Soviet Union also desperately needs conversion from a military to a civilian economy. And in fact, only three months ago, there was set up in Moscow a national commission to promote economic conversion, chaired by a man who was a former military engineer, aerospace, and containing 33 men and women who represent managers, engineers, technologists of various sorts, scholars, the whole affair being supported by the Academy of Science, a peace research institute and their trade union organization at the center.
Well, all that means is that a part of the Soviet establishment sees the conversion matter as a serious issue.

BILL MOYERS: See, that’s-you’re going up against the grain. You’ve been going up against the grain your whole adult life, because you’ve been worrying this issue for as long as I have been reading about you. But you have not reached the men and women who work in the General Dynamics of America, the second-, third-, fourth-generation families working for this company. It’s not, as my friend Larry Wright, the author of this piece says, it’s not a company, it’s a culture down in Fort Worth, with thousands upon thousands of families. You haven’t convinced them that they can make as good a living in a civilian economy as they can living off the Pentagon’s defense budget.

SEYMOUR MELMAN: Let’s get right to it. I’ll bet you, if this program, this discussion, is heard in Fort Worth-

BILL MOYERS: It will be.

SEYMOUR MELMAN: -there will be an immediate reaction. There will be a lot of skepticism, but there are going to be some people who will say: “Maybe we better look into this. How can we go about redesigning our factories to be serviceable for the technical and economic conditions of working in a civilian market?”

BILL MOYERS: Tell me how you propose we do that? How-I work in General Dynamics, or I work along 1-28 in Boston or the Pacific Northwest at Boeing or in southern California. I work there. Tell me, good friend Melman, what am I going to do for a living? How am I going to “convert”? To what faith?

SEYMOUR MELMAN: The strategy for doing this is laid out in House Resolution 101. The core of the bill is the requirement that every military serving factory, base and laboratory with 100 people or more must set up an alternative use committee, half of whose members are named by management, half named by the working people. The job of the alternative use committee, with access to all the data of the enterprise, and funded out of the ordinary administrative budget of the enterprise, is to prepare a complete technical and economic redesign of the facility for making a civilian product.

The bill also provides for, again, mandatory occupational retraining for the engineers and managers, in particular, who’ve been at work for the Pentagon 10 years or more. The bill also stipulates that there be a national computerized network of the state employment services, that there be payment for relocating people who have to move a distance for new work. The bill also provides for income maintenance, so that over and above job insurance and over and above payments made by the firm when people leave, there would be income support, up to an agreed level for a period of as much as two years.

Now, are there other things that present defense contractors could produce? Sure there are. I’ll name two lists of such things. One is the list of things that we now import, and which are producible here. There’s no reason under the sun why this country can’t again produce its shoes, 85 percent of which are now imported. There’s no reason why this country cannot produce a radio, almost all of which are now imported. So the first list is the list of things comprised by the new public works. The second list are the replacements for imports. And the third list is just new stuff. New stuff. The United States used to be very good at new stuff, new ideas, new products. No reason why that can’t be done again.

BILL MOYERS: There’s a political reality you have to address, which is, George Bush is not talking about a peace dividend. He still thinks the world is dangerous enough to require a $300-billion-a-year defense budget. And when he does talk about what we might do with any savings in the defense budget, he talks about reducing the debt, not about the infrastructure, subways, bridges, highways, schools, aquifers, the things you’re talking about when you say are decaying out there.

SEYMOUR MELMAN: Well, George Bush is the central administrative officer, chief administrative officer, of the biggest industrial management in
the United States, and like all other big industrial managers, doesn’t want to diminish his decision power. So he talks about a peace dividend, but he’s against it. Now, then there’s this tack about the national debt. I don’t like debt. I don’t like personal indebtedness. But the economic reality comes down to this. When there is a borrowing that’s applied to productive economic growth, to producing new wealth, then the borrowing and the allied investing is a productive act. When, however, there is borrowing and it’s applied to nonproductive growth, the goods and services that are of no earthly use for consumption or for further production, that’s highly undesirable economically. Morally, too, I think. Politically, too, I think.

BILL MOYERS: But what’s the [crosstalk]-

SEYMOUR MELMAN: But economically undesirable. That means that the massive borrowing on behalf of the Pentagon’s expansion during the last decades is economically deadly. Now, how to treat the issue of the peace dividend in these lights? Suppose there’s a reduction in the budget of the Pentagon, say for a start, $30 billion a year. I would favor 90 percent of that going into new wealth-producing activity, 10 percent going into repayment of debt.

BILL MOYERS: But you see, how can we have a dividend when, in fact, we’ve been borrowing so heavily to support what you call a wasted use of our resources, and we have to pay that debt off now, or future generations are going to suffer a declining standard of living?

SEYMOUR MELMAN: I didn’t decline a repayment. I would merely give priority to the new productive investment from which a greater flow of tax revenue would occur automatically.

BILL MOYERS: But what do you say, finally-this article, “Can General Dynamics Survive Peace?” ends up with a quotation from an ordinary fellow who works for General Dynamics there in Fort Worth. He says: “We’re just a normal American family trying to make a living. General Dynamics has given us a chance to make a good life for ourselves and our children, and for that I thank them. I feel like I’m finally where I want to be in life, yet in the back of my mind, I know things are changing. I wake up every morning and hear the news. I listen to all the things in Russia and Poland and everywhere. I know as well as anybody it can’t last forever.”

SEYMOUR MELMAN: I turn to that man and say, “You’re right. And we have a way of turning around the way you’ve been working and the things you’ve been making, so that you can have a future in an economy and a society at peace.

BILL MOYERS: So don’t be afraid of peace.

SEYMOUR MELMAN: Don’t be afraid.

BILL MOYERS: It’s a very scary period, you know.

SEYMOUR MELMAN: It means learning something new. For some people, it’s scary. But with a little of holding hands together, we can give each other mutual support and make it. It’s worth the try.

BILL MOYERS: [voice-over] From Columbia University in New York, this has been a conversation with Seymour Melman. I’m Bill Moyers.

This transcript was entered on March 25, 2015.

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