US defense buildup is rejigging the map in high-tech industries
The Reagan administration's defense buildup -- and the inevitable slowdown in the late 1980s -- is reshaping the face of high technology. Supporters say that defense spending has created jobs during the computer slump and is pouring money into high-tech research that might not otherwise be done. Opponents charge it is diverting skilled people and scarce resources into military technology that won't easily be translated into civilian use. And both agree the buildup is altering the map of high technology, forcing companies to expand outside the major hubs when the computer slump ends, probably in early to mid-1986.
While most economists interviewed don't see an impending cut in defense spending in absolute dollars, they do see smaller increases down the pike. These could come fairly soon -- if some form of the Gramm-Rudman bill passes Congress, or if this week's summit eventually produces a reduction of offensive weapons -- or when a new administration moves into the White House.
The scenario that many predict, especially if there is a thaw in United States-Soviet relations, is a shift of emphasis from strategic nuclear weapons to ``smart'' conventional weapons and a space-based defense (the Strategic Defense Initiative, or SDI). The prospect of such a shift has already been a boon for high-tech hubs that specialize in sophisticated computers, defense electronics, lasers, optics, and communications technology -- states like California, Texas, and Massachusetts.
This new direction and the mood in Congress to trim the deficit via defense spending will likely hurt low-tech suppliers of readiness materials, fuel, ammunition, and the like. But an emphasis on the sophisticated guidance systems and software involved in smart weapons and the sci-fi technology yet to be developed in SDI will provide billions of dollars for the big players. Between fiscal year 1984 and 1993, the government is expected to spend $70 billion on SDI research.
That's good news for the major defense contractors as some big-ticket items like the B-1 bomber and the MX missile wind down or face an uncertain future. According to the Council on Economic Priorities, which opposes SDI, companies that have to date received the most money from SDI are Lockheed, McDonnell Douglas, LTV, Teledyne Brown, Rockwell International, TRW, and Hughes. SDI also brings in some smaller players, such as General Research Corporation, Sparta, and Science Applications, which were three of 10 companies to be awarded a systems architecture contract to help design the space-based defensive system.
Under the Reagan administration, the military has been footing an ever larger share of R&D spending. According to the National Science Foundation, R&D related to national defense will make up 73 percent of all government funding for research in fiscal 1986, up from 50 percent in 1980.
Supporters of defense spending say the technology developed for the military will be transferred to civilian use. Indeed, American aerospace and computer industries became world leaders largely because of the defense push in the 1950s and '60s.
But critics worry about the long-term effects of the defense buildup on US competitiveness in civilian markets. This concentration on military technology, the American Electronics Association says, has already given the edge in civilian technology to Japan.
The emphasis on military technology may become more pronounced down the road, says Alex Brown, president of High Technology Professionals for Peace. Because the job prospects are better in defense-related technology right now -- McDonnell Douglas hired 1,350 this year and hopes to recruit 1,450 next year, while computer companies like Wang have laid off employees -- students are focusing on defense-related engineering.
Moreover, the diffusion from military to civilian uses takes a long time, says John Tirman at the Union of Concerned Scientists. ``The military has a very specific range of technical specifications. A computer chip, for example, must be able to withstand extremes of temperature, radiation exposure, jarring . . . . [It requires] a level of sophistication that isn't applicable to civilian technology.''
Robert DeGrasse, a fellow at the Council on Economic Priorities, says that civilian spinoffs from SDI -- like fourth- and fifth-generation software languages, integrated circuits, and laser and optics technology, will be useful. But, he says, ``most of this research will be highly classified. Diffusion of technology can't occur unless the information is available to the private sector,'' and that could be years. In the meantime, the Japanese are channeling all their research into civilian products.
The spoils of defense spending have not been evenly spread. In Silicon Valley, 10,000 people have lost their jobs during the computer slump, raising the unemployment rate to 6.1 percent. Around Boston's Route 128, 5,000 people have been laid off, but Boston's unemployment rate hasn't budged above 3.5 percent.
Why the difference? In part it's because Boston makes computer systems, which are less vulnerable to foreign competition than commodity products like Silicon Valley's semiconductors. But also, Boston's high-tech industry is more oriented toward the military than is Silicon Valley and has benefited more from the defense buildup.
Silicon Valley did eke out a few more million dollars from the Defense Department than did Route 128 in fiscal year 1984 -- $4.9 billion vs. $4.1 billion, according to the Defense Budget Project. But defense contracts provided a greater cushion for Boston during the computer slump because Boston is a smaller market. While it's hard to pin down exact figures, economists estimate that between 20 and 25 percent of Silicon Valley's high-tech industry is defense-related, whereas in Boston it's probably a thi rd or more.
There is some concern that defense contractors are sopping up the laid-off workers from ailing computer and high-tech companies, which chronically complain of a shortage of skilled labor. McDonnell Douglas, the nation's biggest defense contractor, has hired 1,900 ``experienced engineers'' this year and plans to hire 2,200 more next year -- people who come from computer and high-tech companies -- spokesman John Cooke says.
``The level of experience and ability in civilian high-tech firms has dropped dramatically because of competition from military contractors,'' contends Mr. Brown at High Technology Professionals for Peace.
So while Route 128 is enjoying low unemployment right now, the music may stop when the computer industry pulls out of its slump. That could move high-tech to other hubs, says Richard Stein, a lawyer specializing in government contracts and high-technology work. ``The Wangs and the Digitals may have to expand their operations elsewhere . . . it's inevitable that you'll see a migration southward,'' he says, to places like Research Triangle in North Carolina.
That is less likely to happen in Silicon Valley, where there is more slack, says Ricka Pirani, the state labor economist covering Santa Clara County. Also, some 225 companies in the area participate in California's Workshare Program, which subsidizes companies for cutting back their workers' hours (say, to four days a week) rather than firing them. Thus companies in Silicon Valley ``can gear up again quickly when they need to,'' she say, ``but Boston firms are less likely to.''