Economic Conversion, Canada, and Free Trade

Seymour Mellman, The Demilitarized Society: Disarmament and Conversion (Montréal: Harvest House, 1988)

By Joe Mihevc (reviewer)

SEYMOUR MELMAN'S BOOK, The Demilitarized Society: Disarmament and Conversion (Montréal: Harvest House, 1988), is his most recent contribution to the literature on economic conversion. In the light of the current Canadian debates over free trade, the theme of economic conversion requires special attention from a Canadian perspective.

As a Columbia University economist, Seymour Melman has written on economic conversion for thirty years. He has argued that military spending is disastrous for its threat to peace and also for strictly economic reasons. Melman's critics charge that his disarmament advocacy has prejudiced the soundness of his economic theories. As economic indicators confirm the demise of the U.S. as the world's central economy, however, Melman's arguments are gaining a hearing by mainstream economists.

In his earlier writings, Melman correctly predicted the decline of the American economy on the basis of military spending. He did so during the early 1960s, when America's technological genius seemed insurmountable. Post-World War II America believed it could have both "guns and butter."

In books such as Our Depleted Society, Pentagon Capitalism, The Permanent War Economy, and Profits Without Production, Melman relentlessly pursued his theme that massive spending on weapons was rapidly making the U.S. a second-rate industrial power. The political economy of peace, he said, was required for humanity's survival, and for the quality of life of the American people.

This new book, The Demilitarized Society, documents the level of economic decay due to military spending. Contrary to the aspirations of Reaganomics, U.S. military spending did not provide jobs and stimulate industrialization. Military spending in fact has led America down the road to ruin, toward becoming a second-rate economic power.

Melman argues that the priority given to military spending has resulted in a shortage of capital for civilian production. Thus the steel industry is making less steel (though it is making more profit), as blast furnaces cannot compete with modern Japanese steel production facilities. Machine tools, the most fundamental equipment for an industrial society, are being increasingly imported. In the 1980s, imports in virtually every area are replacing American-built consumer goods.

The military-industrial complex also introduced a style of corporate management into the U.S. that was manager-centered rather than production-centered. This spread inefficient industrial patterns to the mainstream of the U.S. economy. The infrastructure of the U.S.-- the support base for industry -- has also declined. Industry cannot expand because of inadequate roads, water, sewage systems, bridges, and mass public transit.

Hence the American economy has declined, as shown by the rising trade deficit and the declining industrial wage, relative to other industrialized nations. The opulence granted to Pentagon firms has depleted civilian industry and lowered the American standard of living.

In Chapters 3 and 4, Melman addresses the technical problems of disarming. The "nuts and bolts" of economic conversion include alternative use committees in military industries, training of workers and managers for the civilian marketplace, and government legislation to establish these processes.

Melman also challenges the peace movement. He criticizes single-weapon and nuclear-only campaigns, and "arms control organizations" that do not challenge the power of the military-industrial complex. The peace movement needs to use short-term campaigns as vehicles for promoting competent economic and political policies.

Melman's argument is well-supported and deserves to be taken seriously. I definitely recommend the book for people interested in either peace or economics, with a few caveats. From the perspective of a nation economically dominated by American transnational corporations (TNCs), Melman's analysis is incomplete, in that it fails to take seriously the role and interest of the TNCs in the current political-economic-military status quo. Melman undervalues the larger economic power structures behind the Pentagon industrial complex. Non-military TNCs do not oppose the military-industrial complex, even though, according to Melman, it would be in their interest to do so. It is not that "common sense" has not prevailed in the extravagant military budgets, but rather that the rationale for the system has to be found at another level.

Melman's analysis falls short, it seems to me, by overemphasizing economics in national terms. It is becoming less helpful to argue about the economy of the U.S. or of Japan, or of Canada. The U.S., Japan, and Canada are being replaced by Exxon, General Motors, IBM, and Mitsubishi. It is more helpful analytically to see a global economy at work, with the Pentagon's military apparatus in a decisive role. This global system has the U.S. doing the managing and acting as the strongman, Europe and Japan providing the industry, and the Third World performing the manual labor and providing the raw materials. The role of the American military and thus the underlying rationale for the opulence of the Pentagon industrial base, is to harmonize the interests and values of the new power brokers, the TNCs.

In the Canadian case, economic conversion has its own peculiar features that need to be complemented by U.S.-oriented analyses such as Melman's. Certainly Canada also suffers from the negative impact of military spending on job creation and the diversion of money away from social programs. The Canadian military-industrial base, however, has additional aspects to notice.

Lessons can be drawn from recent Canadian history. When Diefenbaker cancelled the Avro Arrow project in 1959, the government entered into the Defence Production Sharing Arrangements (DPSA) with the U.S. The DPSA was a type of "free trade" arrangement, in that production and trade of war materials were now not to be impeded by the border between the two countries. Both countries were to facilitate trade through import duty relaxation, waiving "Buy America" Acts, and assisting Canadian firms in entering the market. In 1963, a very important clause was added to DPSA providing for a "rough balance" of trade between the two countries.

The DPSA defined how Canadian military industries were to manufacture their wares. They were not to research or develop any major weapons system on their own. The Pentagon remains the design authority and its Canadian companies are the prime contractors. Canadians have been relegated to selling component parts to the U.S., which then sells completed weapon systems back.

The Canadian state has strongly supported this form of industrialization. Government departments, agencies, and programs aid defence industries in obtaining military contracts. The kingpin of these programs, particularly from an economic conversion standpoint, is the Defence Industry Productivity Program (DIPP), which in 1986-87 granted $190 million in order to "develop and maintain strong defence-related industries across Canada." In Canada's industrial strategy, the DIPP provides a key mechanism of converting civilian to military production.

Has this form of industrial production aided Canada in purely economic terms? Military production in Canada suffers, not only from the general inefficiencies of military spending, but also from its branch-plant relationship to U.S. military industries. Furthermore, it has not produced the jobs resulting from trade that have been promised by successive post-Diefenbaker governments, because of the DPSA requirement to buy completed weapons systems in return.

The foreign policy effect is a further cost. With Canadian military companies producing component parts for U.S. weapons systems, Canadian salespeople of military products are pulled towards Pentagon trading patterns. Canada has become the "friend of a friend" in international arms peddling. Thus in the 1970s, for example, the prime recipient of Canadian war materiel overseas was the U.S.-backed Shah's Iran, among the worst offenders against human rights of the period. The political cost of DPSA thus draws Canada away from a nonaligned foreign policy.

Today, with the TNCs anxious to implement free trade, Canadians must examine the economic reasons for participating in this military industrialization. Yet few Canadians realize that the prime mover pushing the free trade deal is the Business Council on National Issues (BCNI). The BCNI brings together representatives from the largest TNCs located in Canada. Not accidentally, this same organization played a vital role in the Canadian Defence White Paper, which proposes dramatic increases in military spending, with nuclear subs topping the list.

The kind of industrialization that free trade will boost will be military. In the fine print of the current agreement, the possible elimination of Canadian "subsidies" (such as unemployment insurance, Canadian Pension Plan, regional development schemes, marketing boards) are left to be considered at a future date. At the same time, the American method of state intervention in the economy, namely through the Pentagon and its industrial firms, has been agreed to as a legitimate form of government support of regional development programs, affirmative action, and the like.

If Seymour Melman's analysis of the decaying militarized American economy is taken seriously, Canadians ought to question the wisdom of hooking their futures more closely to a falling star. By further integrating into the American war economy, Melman warns us, Canada is tying itself to a highly inefficient, management-dominated, cost-maximizing, highly corrupt industry. Given Canada's marginal status to the U.S., the ill effects will be felt all the more strongly.

Economic conversion in Canada cannot be examined separately from the political and economic issues between the two countries. At this point in history, Canadian peace activists may be well-advised to join the anti-free trade movement to advance our disarmament concerns.

Joe Mihevc is currently the Acting Co-Director of the Ecumenical Forum of Canada and teaches Religious Studies at the University of Toronto.

Peace Magazine Oct-Nov 1988

Peace Magazine Oct-Nov 1988, page 22. Some rights reserved.

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