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An Economist Examines the QDR

Ann Markusen
Professor and Director, Project on Regional and Industrial Economics Rutgers University and Senior Fellow, Council on Foreign Relations May 27, 1997

The Pentagon's Quadrennial Defense Review was unveiled in the middle of the University's exam week. I found myself holding it to the same standards I do my students' work - logical force and clarity, skillful and honest use of evidence, math competence. On all three, I came pretty close to flunking the QDR.

A good four year defense plan should evaluate the demand for national security and evaluate the options for supplying it in a fiscally responsible manner.

Let's start with demand. Most Americans would agree that security strategy and defense budgets should be driven by an evaluation of contemporary threats to American security. Such threats have subsided by orders of magnitude since the end of the Cold War. Nobody, including our own intelligence establishment, thinks we'll have serious competitors for, conservatively, ten to twenty years. Yet, Secretary Cohen, in his message accompanying the release of the QDR, warns that "new threats and dangers - harder to define and more difficult to track - have gathered on the horizon."

The QDR fails to make a compelling case for who the new enemies are or how the nation could best defend against them. It suggests that peacekeeping, urban terrorism and information warfare are apt to become increasingly important challenges, but then grandfathers in every existing, inappropriate Cold War weapons system. It also places, in Cohen's words, "much greater emphasis on the need to prepare now for the future, in which hostile and potentially hostile states will acquire new capabilities." But the latter are built on technologies embedded in arms exports from American and allied nations. The fiscally responsible way to ensure security on this front is simply to stop exporting.

So the QDR doesn't pass the test of demonstrating demand. What about supply? Here the QDR makes strong and controversial statements on how to change the way national defense is supplied. It argues for cutting manpower and military bases while increasing the equipment it buys from the private sector by 50%. At points, the rhetoric runs thick: "The drawdown is now over, the dividend from procurement reductions has been spent, the procurement holiday must end, and investment in modernization needs to rebound." Procurement holiday? With ongoing expenditures of roughly $50 billion a year, enough to cover unwanted B-2s and Seawolf Submarines??? I would scribble in the margin were I grading this paper. Overall spending remains as high as it was during the 1970s, when we still faced a potent Cold War adversary, and procurement as a share of the budget is even higher than it was then.

Within procurement, the greatest aspirations are reserved for weapons associated with the Revolution in Military Affairs. (I never let students capitalize in this fashion. It betrays weakness of concept.) The RMA refers to that bundle of precision bombing, battlefield intelligence and management techniques exhibited in the Gulf War. But the efficacy of these methods is hotly contested by defense analysts and scholars. Furthermore, it is becoming increasingly difficult to imagine wars of this sort in our future. No other country is investing in this type of equipment. The emerging missions of peacekeeping and countering terrorism, even guarding against electronic warfare and sabotage, are more likely to rely intensively on skilled manpower, not on remotely controlled precision-guided munitions.

How about fiscal responsibility, that conceptual point where supply is supposed to meet demand at an affordable price? The big boost in procurement would be paid for by troop reductions and by anticipated savings from privatizing Pentagon functions like depot operations and maintenance. Like ephemeral savings from procurement reform, the promised savings of privatization are bound to be illusory. Here the Pentagon is failing to learn from the record of urban service privatization, where we have had ten years' head start. Evidence amassed in separate studies by economist Eliot Sclar at Columbia and management professor Moshe Adler at Rutgers shows that a one-time savings from competitive outsourcing is almost universally obliterated in subsequent years by supply side monopolization and corruption via close ties between winning contractors and politicians.

Secretary Cohen claims that the QDR is fiscally responsible, with the DOD doing its part to balance the budget. The QDR envisions a constant (in real terms) defense budget into the future. But the President is about to conclude a budget agreement that calls for cuts of a further $77 billion in defense spending over the next five years. With the commitment to deficit reduction and so many other pressing agendas - our cities, elderly and poor, infrastructure, environment, education, health care - it is simply not reasonable to expect to hold defense harmless, especially when the security threat is so hard to identify.

There are other failings in the QDR - among them its breathtaking indifference to the fate of displaced soldiers and civilian employees. It offers no vision for transitional assistance to parlay their skills into civilian activity, despite repetitive statements on the importance American commercial strength for national security.

Fortunately, the QDR is just a draft. The Pentagon has a chance to improve it before finalization next month. If it doesn't, perhaps that job will be done over the coming months by the President's National Defense Panel. One thing is for sure. If Americans don't insist on a clear rationale for continuing Cold War programs, investments in fancy new gear and continued high levels of spending, we will end up spending more than we need on both past and future weapons, without palpable contribution to our security. And we will pay for it with less health care, infrastructure that falls apart faster and diminished international competitiveness. For now, I'd be generous and give the draft a "D" and hope that the next version will offer us real security value for our dollars.

© Ann Markusen May 27, 1997

Ann Markusen is Professor and Director of the Project on Regional and Industrial Economics at Rutgers University and Senior Fellow at the Council on Foreign Relations. The views express herein are the author's alone and do not represent the views of either Rutgers University or the Council on Foreign Relations.

Ann Markusen, "An Economist Examines the QDR,"

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