|
|
|
ARMS TRADE RESOURCE CENTER REPORTS - Welfare for Weapons Dealers: The Hidden Costs of the Arms Trade For further
information: United States Arms Deliveries to Regions of Conflict by William D. Hartung Acknowledgments
In addition to the individuals and organizations who provided research support (see text and notes), the Institute would like to thank the following foundations whose support made this project possible: the CaReth Foundation, the Compton Foundation, the S.H. Cowell Foundation, the John Merck Fund and the Ploughshares Fund. Table of Contents
Summary
of Findings At best U.S. arms exports provide marginal short-term gains for the U.S. economy, in the range of a few billion dollars per year. Once all major factors are taken into account, including the cost of taxpayer subsidies for arms exports, the impact of industrial offset programs, the role of arms transfers in fostering regional arms races that can result in additional U.S. defense expenditures, and the opportunity costs for the U.S. and international economies that result from promoting weapons exports instead of commercial activities, promoting arms exports results in a long-term net cost to the U.S. economy. In addition to this overall finding, the report identified five specific effects of U.S. weapons exports: 1) The Militarization of the Foreign Aid Budget: At a time when the end of the Cold War has created new needs for economic assistance to help spur the democratization of Russia and the former communist regimes of Eastern Europe and to support the Mideast peace accords, a substantial portion of the U.S. foreign aid budget is tied up in security assistance programs that directly or indirectly subsidize the export of armaments. For F.Y. 1994, arms export-related subsidies accounted for 43% of the entire U.S. foreign aid budget, and 56% of U.S. bilateral aid programs.
I.
Introduction: The Role of Economics in Arms Transfer Decisionmaking
The most dramatic evidence of the growing power of pork barrel politics to shape arms export policy came during the 1992 presidential campaign, when President Bush announced nearly $20 billion in new arms sales agreements within a six week period starting in September of 1992. The two biggest deals, a $6 billion sale of 72 F-15 combat aircraft to Saudi Arabia and a $9 billion sale of 150 F-16 fighter planes to Taiwan, were announced at campaign-style rallies staged at the factories where the planes are manufactured. President Bush explicitly presented the F-15 sale as an economic decision, telling a rally of McDonnell Douglas workers in St. Louis that "in these times of economic transition, I want to do everything I can to keep Americans at work." An official involved in the F-16 deal gave a similar explanation of that arrangement to the Washington Post when he acknowledged that "the driver of this is the politics and economics of it, not the national security issue."[2] Despite the fact that he was running on a Democratic platform that promised to "press for strong international limits on the dangerous and wasteful flow of weapons to troubled regions," Bill Clinton chose not to criticize the Bush Administration's last minute arms sales binge, apparently out of fear that he would be labeled "anti-jobs" in the middle of a recession. These two major arms sales policy decisions were not made in a vacuum. General Dynamics, which at that point controlled the F-16 production line in Forth Worth, Texas, worked behind the scenes to get a bipartisan group of Texas politicians ranging from Rep. Joe Barton (R-TX) to Sen. Lloyd Bentsen (D-TX) to press for a reversal of a ten-year-old U.S. ban on selling sophisticated fighter aircraft to Taiwan. And McDonnell Douglas waged what Rep. Howard Berman (D-CA) has described as "the most sophisticated and far reaching campaign to promote an arms sale that I've seen since I've been in Congress." Exaggerated claims about the economic benefits of the sale were the centerpiece of the McDonnell Douglas lobbying effort, which included the distribution of a state-by-state breakdown of its alleged effects on employment and income, hundreds of presentations of a slick video warning of dire economic consequences if the sale didn't go through, and the generation of over 20,000 letters to Congress in favor of the deal.[3] Whatever their true economic impacts, the potential costs of these two fighter sales for the future of U.S. security were dangerously high. The two deals played a major role in scuttling the so-called P-5 arms transfer control talks that had been initiated among the United States, the Soviet Union (whose seat at the talks was later filled by Russia), China, France, and the United Kingdom at the end of the 1991 Gulf conflict. The F-16 deal violated a 1982 communique between the United States and China in which the U.S. had pledged not to exceed then current levels of arms transfers to Taiwan, and China walked out of the P-5 talks in protest over the sale. The F-15 sale to Saudi Arabia pushed U.S. sales to the Middle East since the beginning of the Gulf conflict to over $38 billion, severely undermining U.S. credibility as an advocate of arms transfer restraint to the region.[4] The Clinton Administration has yet to establish clear priorities in its own arms transfer decisionmaking process, but there are a number of early signs to indicate that economic factors have been accorded a high priority. Commerce Secretary Ron Brown has been a strong advocate for U.S. arms sales, to the point of personally lobbying foreign defense officials to purchase U.S. weaponry. And an official involved in developing the administration's conventional arms sales policy has stated that "our first concern is to level the playing field -- we're not about to entertain any proposal [on limiting conventional arms sales] that would disadvantage our manufacturers." These economic emphases have been tempered by commitments on the part of President Clinton and Secretary of State Christopher to seek means to limit the spread of conventional armaments as part of broader strategies for conflict prevention and non-proliferation. If these arms control objectives are to be achieved, it will be essential that the economics of the arms trade be assessed in a more realistic perspective.[5] It is the aim of this report to give a clearer picture of the economic impacts of weapons exports on the U.S. economy by outlining the hidden costs of the arms trade. By providing a fuller accounting of the costs as well as the benefits of arms exports, the report will provide a more reliable baseline for considering the economic impacts of reductions in the arms trade.
II.
Hidden Costs (I): Government Subsidies Over the past ten years, total U.S. arms exports have averaged roughly $19 billion per year. During this same time period, government loans, grants and cash payments to U.S. arms clients for use in purchasing U.S. weaponry averaged over $6 billion per year. Therefore, any fair accounting of the economic impacts of weapons transfers must begin by acknowledging that in any given year, approximately one-third of all U.S. arms exports are paid for by U.S. taxpayers, not by foreign governments. These subsidized exports provide no net gain to the U.S. balance of payments, and to the extent that they stimulate domestic employment, it is at a lower level than would be the case if these same government funds were invested in fulfilling civilian domestic objectives (this point will be discussed in more detail in section V, below). The U.S. government's arms export subsidy budget represents a net drain on the U.S. economy, not a net benefit.[6] The extent of direct and indirect financial subsidies for U.S. arms exports in the Fiscal Year 1994 budget is documented in Table A. The major elements include the Pentagon's Foreign Military Financing (FMF) program, which provided $3.2 billion in grants and $800 million in subsidized loans for the purchase of U.S. military equipment and services; the International Military Education and Training program (IMET), which allocated $42 million for the training of foreign military personnel; and the Economic Support Fund (ESF) program, a $2.2 billion effort which provides mostly cash assistance to key U.S. arms clients such as Israel, Egypt, Turkey, and Morocco. The Foreign Military Financing program represents a direct subsidy to U.S. arms exporting firms, while the IMET and ESF programs are indirect subsidies. The IMET budget is routinely justified at least in part as a means of generating an interest in U.S. equipment among foreign military officials. To the extent that it serves this purpose, the funds spent on it can be considered as supportive of arms industry marketing efforts. While a small portion of the Economic Support Funds budget goes to support infrastructure and development projects in poor nations, the funds are allocated according to security considerations, not economic development criteria. And because the majority of ESF funds are disbursed as cash payments to governments that are major arms clients of the United States, the program serves in effect as an indirect subsidy to weapons exports. Taken together, these direct and indirect subsidies for weapons exports (Foreign Military Financing, Economic Support Funds, and IMET) total more than $5.6 billion in the Fiscal Year 1994 budget, accounting for 43% of the U.S. foreign aid budget, and 56% of U.S. bilateral aid (see Table A). Over time additional costs are likely to be incurred as a result of defaults or forgiveness on U.S. foreign military sales loans and related export finance programs. As of early 1993, there were nearly $20 billion in outstanding U.S. government guaranteed loans for weapons exports, and the prospects were high that a significant portion of those funds would at a minimum have to be rescheduled, and ultimately might not be repaid at all. The forgiveness of $7 billion in U.S. military loans to Egypt during the 1991 Persian Gulf conflict was a dramatic example of how loans for weapons exports can be transformed into taxpayer-funded giveaways at the stroke of a pen. Similarly, the more than $2 billion in outstanding U.S. government loan guarantees for technology transfers to Iraq during the late 1980s are likely to result in a similar taxpayer bailout. And if an industry plan to launch a new $1 billion arms export loan guarantee fund is approved by the Clinton Administration, the likelihood of more lending to other unreliable borrowers will follow in its wake. While full statistics on the status of U.S. government sponsored military sales loans were not available as of early 1994, the available evidence points to a minimum of $1 billion per year in costs generated by bad military-related loans over the past decade alone.[7]
In addition to the costs involved in the financing of weapons exports, there are significant resources devoted to what may be called the "arms export infrastructure" -- the constellation of policies, personnel, and programs that are utilized in whole or in part to promote the export of U.S. weapons to overseas customers. These hidden subsidies include the use of U.S. government personnel and equipment at international air and trade shows; the production of U.S. government publications that are utilized in promoting weapons exports; and the ongoing involvement of government employees in monitoring, approving, and facilitating arms sales. For example, a March 1993 analysis by the General Accounting Office found that the military services spent at least $3.8 million on equipment and personnel that were deployed at six major air and trade shows held between June of 1991 and September of 1992. These estimates do not include hundreds of thousands of dollars in fees and civilian salaries, nor do they cover the $18.9 million cost of an AV-8B Harrier jet that crashed while leaving the 1992 Singapore Air Show. Taking into account the scores of smaller air and trade shows that include a U.S. military/governmental presence each year, the overall costs of subsidizing these exhibitions average well in excess of $25 million per year. After taking a promising step toward limiting U.S. government subsidies for air shows by prohibiting direct involvement of Department of Defense personnel at the 1993 Paris Air Show, the Clinton Administration has now backtracked and argued that "it is in the national security interests of the United States" for the Pentagon to participate directly in the February 1994 Singapore Air Show. Preliminary estimates of the costs of U.S. government involvement at Singapore put the cost at $550,000.[8] In addition to the periodic expenditures associated with air and trade shows, there are substantial ongoing governmental expenditures incurred for the promotion of arms sales. One of the most blatant examples of this kind of activity is the "Catalog of U.S. Defense Equipment and Services," a listing of available U.S. weaponry, complete with pictures and descriptions, that is published by the Pentagon's Defense Security Assistance Agency (DSAA) and made available to potential foreign customers at U.S. security assistance offices in 74 nations. The catalog represents just one small part of DSAA's roster of activities in support of overseas arms sales, which includes helping to negotiate major arms deals with foreign governments, handling the financing and paperwork involved in processing weapons exports, training personnel for overseas security assistance missions, and even running a school for civilian and military personnel involved in the arms trade, the Defense Institute for Security Assistance Management (DISAM). By one estimate, there are on the order of 15,000 to 20,000 personnel in the Pentagon and the military services who play some role in facilitating arms exports. In F.Y. 1993, the Army, Navy, Air Force, and DSAA alone employed nearly 5,000 full-time equivalent personnel in foreign military sales and security assistance activities, at a cost of roughly $300 million. Taking into account thousands of additional employees who work on arms export issues in related agencies such as the State Department's Center for Defense Trade and the Commerce Department's international trade promotion programs, the overall costs of ongoing arms export promotion activities may be conservatively estimated at $500 million per year.[9] Looking at the whole picture of U.S. government-supported arms export promotion and facilitation -- including direct and indirect financing, promotional activities at air and trade shows, production of publications, and the employment of thousands of personnel in government for the purpose of facilitating weapons exports -- the sum total of U.S. government subsidies for arms sales comes to more than $7 billion per year, or more than one-third of the total value of all U.S. arms exports in an average year.[10]
III.
Hidden Costs (II): Offsets Although reliable statistics on the total value of offset arrangements entered into by U.S. defense firms in a given year are not publicly available, it is clear that this practice substantially reduces the net benefits of arms sales to the U.S. economy. A number of industry sources have indicated that for most sales outside of the Middle East, a 100% offset target has become standard practice. That means that if the offset agreement is fulfilled, the arms manufacturing company will channel a volume of business to the purchasing country that is equivalent to the total cost of the weapons system that is being exported to that country. A substantial portion of this "offset" business will be comprised of activity that might otherwise have been carried out in the United States by U.S. firms and U.S. workers. The result is to drastically undercut the net benefits that accrue to the U.S. economy from weapons exports.[11] While company offset commitments may not be completely fulfilled (in the sense that they don't always steer the promised amount of business to the purchasing nation), the evidence that exists on this practice indicates that it entails a substantial drain on the U.S. economy. A survey of major arms sales during the period from 1980 through 1987 by the Commerce Department's Bureau of Economic Analysis identified $35 billion in military exports involving offset arrangements. The reported value of the offset deals was approximately $20 billion, or more than 57% of the value of the original exports. Given the increasing demands of major purchasers for 100% offsets on new weapons sales, the proportion of offsets to original sales is probably even higher now than it was during the 1980s. As noted in section II (above), anywhere from one-third to one-half of the value of U.S. weapons exports is subsidized by the taxpayers. Add to this the fact that 50% or more of the value of most major U.S. arms sales is offset by steering other kinds of business from the United States to the purchasing country, and it becomes apparent that the net value of arms exports to the U.S. economy in a given year will range somewhere between a small net gain and a small net loss. After subtracting the costs of taxpayer subsidies and offsets, in an average year U.S. arms sales probably result in a net inflow of no more than a few billion dollars; depending on how rigorously U.S. firms fulfill their offset commitments to foreign purchasers, arms sales may even represent a net loss to the U.S. economy. A few examples of current offset arrangements will demonstrate how this process works.[12] In August of 1993, McDonnell Douglas announced an agreement to sell 8 F/A-18 fighter aircraft to Malaysia. The deal was part of a "split decision" in which the Malaysian government opted to buy 18 Russian MIG-29 fighter aircraft along with the 8 F/A-18s. It was agreed from the outset that as a condition of the sale McDonnell Douglas would enter into a long-term industrial cooperation pact with Malaysia that would include "development of repair facilities in Malaysia and appropriate offsets that would facilitate Malaysian development of indigenous aerospace capabilities by 2020." Several months later, the commitment was formalized with the signing of a ten-year, $250 million offset program between McDonnell Douglas and Malaysia the would involve among other things establishment of maintenance and training facilities in Malaysia and production of some F/A-18 components there. While McDonnell Douglas officials contemplate some additional weapons exports to Malaysia during the term of the offset arrangement, it is significant to note how large and long-term a commitment the company made to Malaysia on the basis of an arms sale that with a value that is unlikely to exceed $300 to $350 million.[13] Offset agreements frequently take business directly out of the hands of U.S.-based firms. Sen. Russ Feingold (D-WI) has highlighted a particularly egregious example of this in connection with Northrop's efforts to meet an offset commitment to the government of Finland, tied to the purchase of F/A-18 fighter aircraft. The Beloit Corporation, a subsidiary of the Wisconsin-based Harnischfeger Industries, was in competition with a Finnish company, Valmet Corporation, to sell a $50 million papermaking machine to a major paper manufacturer. During the course of the negotiations, Northrop offered the paper manufacturer over $1 milliion if the company would agree to buy the papermaking machine from the Finnish company rather than from Beloit. Northrop justified its action as part of an offset arrangement that it had entered into with the government of Finland in keeping with the company's role in producing roughly 40% of the F/A-18 aircraft. Feingold has pressed for an investigation of this practice, but so far the relevant U.S. government agencies -- including the Commerce and Defense Departments and the Office of the U.S. Trade Representative -- have adopted a hands off attitude, indicating that Northrop was within its rights in offering what amounts to a veiled bribe to take business away from a U.S. firm and steer it to a foreign arms customer. A forthcoming General Accounting Office report requested by Senator Feingold may shed more light on how prevalent this practice is, and what its impacts are on U.S. companies.[14]
IV.
Hidden Costs (III): Threat Creation In September of 1993, then Secretary of Defense Les Aspin released the Pentagon's long-awaited "bottom-up review" of U.S. military forces and defense strategy. The focal point of the new post-Cold War strategy was on maintaining a capability to fight and win two major regional conflicts "that occur almost simultaneously." The document went on to pinpoint the need to "project power into regions important to U.S. interests and to defeat potentially hostile regional powers, such as North Korea or Iraq."[16] By highlighting
these two regions -- Asia and the Middle East -- the Pentagon inadvertently
underscored the link between unrestrained conventional arms transfers
and the growth of aggressive regional powers that pose potential
threats to U.S. forces. Asia is the fastest growing market for conventional
armaments, while the Middle East/Persian Gulf area is the largest
market for these weapons systems. The United States was the largest
supplier of conventional armaments to each of these regions in 1992,
the most recent year for which full statistics are available. United
States arms transfers to these two areas and other regions of potential
conflict contribute both directly and indirectly to the threats
faced by U.S. forces, helping to keep the U.S. defense budget at
$260 billion-plus Cold War levels in the process. Even when U.S. arms do not end up under the control of hostile forces, they can contribute to a regional arms race dynamic that serves to elevate both the levels of tension and the quantity and quality of armaments available in regions where U.S. forces are most likely to be employed. Iran's $2 billion or so in annual weapons purchases are made in part with an eye towards the tens of billions of U.S. arms that have been purchased by Saudi Arabia over the past few years. U.S. sales to South Korea, Taiwan, Singapore, Malaysia, Thailand, and other regimes in Asia are part and parcel of the process that has transformed that region into the fastest growing arms market in the world. With U.S. arms sales to the Third World now at three and one-half times its nearest rival, France; ten times the levels of sales undertaken by Russia; and more than one hundred times greater than the total volume of Chinese sales, it is evident that any multilateral arrangement to limit weapons exports will have to start with action on the part of the United States.[18] A new U.S. policy that promotes multilateral arms transfer restraint would reduce the likelihood of warfare breaking out in areas of particular interest to the United States, and it could ultimately save tens of billions of dollars in annual U.S. defense expenditures. A 1992 study by the Congressional Budget Office identified $10 billion in potential savings that could flow from an arrangement to cut arms imports to the Middle East in half; the study went on to argue that "limits on the growth in the size and sophistication of Mideast forces could reduce pressures to modernize U.S. forces," a move which "could save additional billions of dollars a year in defense budgets."[19] Comparable savings could be realized if a similar arrangement was sought to limit the growth of arms spending in Asia.
V. Employment
Effects and Alternatives This level of job displacement would have a minimal impact on the overall U.S. economy. To the extent that the cuts in arms sales were disruptive, the effects would be felt in particular communities such as St. Louis, Missouri, Fort Worth, Texas, or Boston, MA, where major export items like the F-15 and F-18 aircraft, the F-16 fighter plane, and the Patriot missile are produced. A review of contracts issued under the Pentagon's Foreign Military Sales program, the principal channel for U.S. arms exports, demonstrates how narrow the geographic impact of arms export reductions is likely to be. For Fiscal Year 1992, five states accounted for more than 63% of total FMS contracts (see Table B). And even for these five states, Foreign Military Sales awards were a small proportion of their overall Pentagon contracts: 4.4% for California, 8.3% for Massachusetts, 9.9% for Florida, 16.3% for Texas, and 27% for Michigan.[21] But no matter how small the employment impact as a share of the overall national economy, nor how narrow the geographic distribution of contract reductions (and consequently, job displacement), arms export-related jobs are obviously of overriding importance to the individuals who hold these jobs and the communities where they are employed. A program of targeted assistance to displaced workers and a strategy for generating alternative sources of income and employment would be the most effective ways to address the negative employment effects of arms transfer reductions on export dependent communities.
Alternative investments of the funds now devoted to subsidizing weapons exports would be one way to create new jobs to replace those lost as a result of arms export reductions. For example, a $3 billion shift of funds now used to subsidize weapons exports into new investments in housing, education, and health care could result in a net gain of 49,000 person-years, or 10,000 to 16,000 jobs per year over a three to five year period. Putting the same $3 billion into state and local government services could yield a net job gain of 12,000. Either of these approaches could offset between one-quarter and one-third of the total job displacement resulting from a significant policy of arms transfer restraint (see Table C).[22]
* The estimate for arms exports is based on an estimate for "other transportation equipment," a category that includes frequently exported items of military equipment such as tanks, missiles, and military aircraft. A second strategy for mitigating the job impacts of arms transfer reductions would be to promote alternative exports of civilian products. A key element of a civilian export strategy would involve working to reduce arms imports and military spending in developing nations and channeling those funds into more productive economic uses. The potential increase in export markets that would result from such an approach would be substantial. A recent study by the International Monetary Fund has estimated that a 20% reduction in worldwide military spending could yield more than $190 billion in new markets for consumer products by the end of this decade, a figure that dwarfs the annual value of the weapons trade, which averages roughly $50 billion per year. Similarly, the Congressional Budget Office found that cutting arms imports into the Middle East in half could result in an increase in imports of civilian merchandise of as much as 20% or more in some states in the region, creating new potential markets for U.S. firms in the process. And a study by the Overseas Development Council covering the mid-1980s showed that depressed growth in developing nations during that period cost the U.S. economy a total of 1.8 million jobs as a result of lost export opportunities. To the extent that reductions in arms imports and military spending are coupled with productive investments in developing nations, an arms sales restraint policy could become a pivot point for ushering in a period of renewed growth in the developing world that could sustain hundreds of thousands of new jobs in U.S. export industries. But as long as U.S. policymakers are tied to the dead end strategy of subsidizing weapons exports as a way of propping up an oversized defense industry, these new opportunities for promoting enduring growth in the United States and abroad will never be fully realized.[23]
VI.
Recommendations 1) Conduct an Arms Sales Policy Audit: Using the full investigatory and auditing powers at its disposal, the Clinton Administration should conduct a comprehensive arms sales "policy audit" that reviews the full costs of U.S. government efforts to promote arms sales, and takes into account the potential costs to U.S. security (and the U.S. defense budget) of continuing a policy of relatively unrestrained weapons exports. The findings of this policy audit should be used as a guide for reforming and reorienting U.S. arms transfer policies and practices to bring them into line with the demands of the post-Cold War security environment. Looked at in perspective, the economic benefits of arms exports are much smaller than the assertions of defense industry officials would indicate. The short-term economic benefits are marginal at best, and any negative consequences of a policy of arms transfer restraint would be narrowly focused on a few areas. Furthermore, in the long run there are substantial potential economic gains for the U.S. and world economies that could result from a policy of limiting arms sales and military spending in regions of potential conflict. Taking U.S. government resources out of the arms export promotion business and putting them into building a strong domestic economy and promoting enduring commercial markets would be a far better strategy for the future of the U.S. economy and U.S. security than the current approach of letting the short-term economic benefits of arms sales stand in the way of arms transfer restraint.
Notes
2. Michael Wines, "$8 Billion Directed to Wheat Farmers and Arms Workers," New York Times, September 3, 1992; Don Oberdorfer, "1982 Arms Policy With China Victim of Bush Campaign, Texas Lobbying," Washington Post, September 4, 1992; and William D. Hartung, "Arms Sales Win Votes and Little Else," New York Times, October 25, 1992. 3. Statement by Rep. Howard Berman at a briefing on the proposed sale of F-15s to Saudi Arabia sponsored by the Project on Demilitarization and Democracy and the National Commission on Economic Conversion and Disarmament, Washington, DC, July 8, 1992; for a detailed description of the McDonnell Douglas lobbying campaign on behalf of the Saudi F-15 sale see Chapter 8, "The Permanent Arms Supply Network: The Corporate Arms Merchants," in William D. Hartung, And Weapons for All, (New York: HarperCollins, forthcoming, March 1994). 4. Lee Feinstein, "U.S. Arms Transfers to the Middle East Since the Invasion of Kuwait," The Arms Control Association, August 11, 1993. 5. William D. Hartung, "Why Sell Arms?," World Policy Journal, Vol. X, No. 1, Spring 1993, pp. 57-64. 6. Calculations by the author, based on figures in Defense Security Assistance Agency, Foreign Military Sales, Foreign Military Construction Sales, and Foreign Military Assistance Facts as of September 30, 1992; and U.S. Department of State and U.S. Department of Defense, Congressional Presentation, op. cit., F.Y. 1994 edition. 7. Clyde H. Farnsworth, "Egypt's 'Reward': Forgiven Debt," New York Times, April 10, 1991; and Defense Security Assistance Agency, "Status of DoD Guaranteed Loans as of September 30, 1992," and "Status of DoD Direct Loans as of September 30, 1992," February 24, 1993. 8. United States General Accounting Office, International Air and Trade Shows: DoD Increased Promotion, But It's Policies Are Not Well-Defined, GAO Report #GAO/NSIAD-93-96, March 1993. 9. U.S. Department of Defense, DSAA, memorandum on the "Catalog of U.S. Defense Articles and Services," February 20, 1990; "U.S. Defense Articles and Services Catalog," DISAM Journal, vol. 14, no. 1, Fall 1991 (Dayton, Ohio: Defense Institute of Security Assistance Management, 1991), pp. 99-100; Michael T. Klare, The American Arms Supermarket (Austin, Texas: University of Texas Press, 1984), pp. 60-61; and figures provided to Rosy Nimroody by the Office of the Comptroller, Defense Security Assistance Agency, as well as the security assistance offices of the Army, Navy, and Air Force. 10. The estimate
includes spending on Foreign Military Financing, Economic Support
Funds, and other security assistance programs 11. The prevalence of 100% offset targets was confirmed in interviews by the author at the 1993 Paris Air Show, as well as in a series of interviews with defense industry executives in the Northeast and Midwest by Michael Oden of the Project on Regional and Industrial Economics at Rutgers University. 12. U.S. General Accounting Office, Defense Production Act: Offsets in Military Exports and the Proposed Amendments to the Act, GAO Document # GAO/NSIAD-90-164, April 1990, p. 10. A brief example will demonstrate how dramatically offset arrangements can reduce the net economic benefits of arms sales. If the value of U.S. arms exports is at an average level of $19 billion per year, and two-thirds of these exports involve offsets of roughly 60%, the net result will be an outflow of $8 billion in business from U.S.-based firms to companies in weapons purchasing nations. Add to this the more than $7 billion in direct and indirect arms export subsidies provided each year at taxpayer expense, and the net gain to the U.S. economy from arms exports falls to about $4 billion in an average year. If offset targets of 100% become the norm, and more customers demand such arrangements, even this relatively modest net gain from arms exports could be eliminated. 13. Barbara Opall, "McDonnell Forms Malaysian Pact," Defense News, August 16-23, 1993; and "Offset Deal Signed for Malaysian Hornet Buy," Jane's Defense Weekly, November 6, 1993. 14. "Feingold Launches Investigation Into Arms Sale Payoff Offer," Press Release, Office of U.S. Senator Russ Feingold, March 2, 1993; and correspondence from Senator Feingold to the Department of Justice, the Department of Defense, the U.S. Trade Representative, and the General Accounting Office, February 24, 1993. 15. Testimony of Rear Admiral Edward Sheafer, Director of the Office of Naval Intelligence, May 3, 1993, as cited in Lora Lumpe, editor, The Arms Sales Monitor, Issue No. 21, July 15, 1993. 16. Secretary of Defense Les Aspin, Report on the Bottom Up Review, October 1993, p. 7. 17. Testimony of Dr. Caleb S. Rossiter, Director of the Project on Demilitarization and Democracy, Before the Subcommittee on International Security, International Organizations and Human Rights and the Subcommittee on International Operations, House Committee on Foreign Affairs, November 9, 1993; and testimony of William D. Hartung, Director, Project on the Control of the International Arms Trade, World Policy Institute at the New School, before the same two subcommittees, November 9, 1993. 18. Statistics are calculated by the author from Richard F. Grimmett, Conventional Arms Sales to the Third World 1985-1992 (Washington, DC: Congressional Research Service, 1993). 19. Congressional Budget Office, Limiting Conventional Arms Exports to the Middle East, (Washington, DC: U.S. Government Printing Office, 1992), p. 72. 20. A figure of 25,000 jobs per $1 billion of arms sales was used to generate the estimate of 150,000 person-years of work displaced by a $6 billion cut in U.S. weapons exports. The 25,000 per $1 billion figure is based on Congressional Budget Office, Limiting Conventional Arms Exports to the Middle East, op. cit., p. 58; for another analysis of the employment impacts of arms exports see Greg Bischak and James Raffel, Economic Conversion and International Inspection: Alternatives to Arms Exports and Militarism, National Commission on Economic Conversion and Disarmament, November 1991, pp. 32-34. 21. Author's calculation based on DoD contract data for Fiscal Year 1992, provided by Eagle Eye Publishers, Inc., Vienna, Virginia. Foreign Military Sales (FMS) contracts are awarded under the Pentagon's Foreign Military Sales program, a government-to-government arrangement under which the Department of Defense negotiates the terms of a sale with a foreign government, collects the money for the weapons purchase, and passes the funds along to the arms exporting companies. Sales through the Pentagon's FMS program generally account for 70 to 90% of total U.S. arms sales in a given year; the remaining sales are made directly by the arms producing companies to foreign purchasers, and are known as commercial sales. Since there are no data on the geographic distribution of commercial arms sales, the data presented here on FMS contracts do not give a complete picture of the geographic impact of U.S. arms sales -- however, because major FMS contractors are also active in commercial sales, these data give a good rough accounting of the relative concentration of economic activity related to arms sales among states and regions of the country. 22. Employment estimates in this section are from Greg Bischak, Marion Anderson, and Michael Dee Oden, A Shift in Federal Spending: What the Peace Dividend Can Mean to Maine (Lansing, MI: Employment Research Associates, 1990), p. 7; the 49,000 net gain in person-years of work is based on expenditures of $1 billion each on health care, housing, and education using funds that would have otherwise gone to subsidize weapons exports. On the employment impacts of arms sales, see also Rosy Nimroody, "U.S. Doesn't Need to Boost Subsidies for Arms Sales," Christian Science Monitor, October 6, 1993. 23. David Wessel, "Global Defense Cuts Could Be A Big Boon to Living Standards," Wall Street Journal, September 24, 1993; Congressional Budget Office, Limiting Conventional Arms Exports to the Middle East, op. cit., p. 49; and Testimony of Dr. Caleb Rossiter, November 9, 1993, op. cit.
Appendix:
And Weapons for All, a critique of U.S. arms transfer policies from the Nixon through Clinton administrations, New York, HarperCollins, 1994 (updated paperback to be released in May of 1995). "Conventional Arms Proliferation: Rethinking U.S. Policy," Issue Brief prepared for Business Executives for National Security, Washington, DC, December 1993. Testimony of William D. Hartung, Senior Research Fellow, World Policy Institute at the New School, at Hearings on Conventional Arms Transfer Policy Before the Subcommittee on International Security, International Organizations, and Human Rights and the Subcommittee on International Operations, Committee on Foreign Affairs, U.S. House of Representatives, November 9, 1993. "Transparency in Armaments: Implications for the Future Security of the Mediterranean Region," in Disarmament Topical Papers 15 -- Transparency in Armaments: The Mediterranean Region, New York, United Nations Office of Disarmament Affairs, November 1993. "U.S. Has the Corner on the World's Weapons Trade," Seattle Post- Intelligencer, October 13, 1993. "U.S. Doesn't Need to Boost Subsidies for Arms Sales," (by project associate Rosy Nimroody), Christian Science Monitor, October 6, 1993. "Welcome to the U.S. Arms Superstore," Bulletin of the Atomic Scientists, September 1993. "Failure to Curb Lucrative Arms Trade Puts World in Jeopardy," Buffalo News, May 23, 1993. "Arms Trade: Jobs Ahead of Lives," Cleveland Plain Dealer, May 4, 1993. "Global Gunrunning," Seattle Post-Intelligencer, May 2, 1993. "Why Sell Arms?" World Policy Journal, Spring 1993. "Proliferation's Profiteers," CEO/International Strategies, February/March 1993. "Conventional Arms Sales," World Policy Institute Issue Brief, January 1993. Unless otherwise noted, publications are by Project Director William D. Hartung. Copies of project publications can be obtained by writing or calling the World Policy Institute at the New School, 66 Fifth Avenue, 9th fl., New York, NY 10011, tel. 212-229-5808.
Reports | Recent News Coverage | Updates | Links | Search | Contact Us
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
 |