In The Grip Of A Permanent War Economy

by Seymour Melman

March 17, 2003


Now, at the start of the twenty-first century, every major aspect of American life is being shaped by our Permanent War Economy.

Civilian manufacturing industries are being swept away as a war-focused White House and a compliant Congress sponsor deindustrialization of the U.S. (1) They favor production -- as in Mexico and China, where government powers bar independent unions. As production of both consumer goods and capital goods are moved out of America, unions and whole communities are decimated. Ghost towns are created across the country. That process is far along in industries that once invented machine tools, radios, and even TV's. Now the decay proceeds in "new economy" industries like computers and "Palm" type devices. The U.S. firms that sell such equipments typically assemble components that are manufactured elsewhere.

Capital goods have special importance in all this, for those are the tools and machines used to produce everything else. Jon Rynn has calculated that by 2004, 50% of all the production equipments required in the United States will have to be imported, mainly from Germany and Japan. (2)

Meanwhile, government financing is lavished without stint to promote every kind of war industry, and foreign investing by U.S. firms. The war priorities have depleted medical and education staffs. U.S. medical planning now includes programs to recruit large numbers of nurses from India. (3) Shortages of housing have caused a swelling of the homeless population in every major city. State and city governments across the country have become trained to bend to the needs of the military -- giving automatic approvals to their money spending without limit. The same officials cannot find money for affordable housing.

The Permanent War Economy of the United States has endured since the end of World War II in 1945. Since then the U.S. has been at war -- somewhere -- every year: in Korea, Nicaragua, Vietnam, the Balkans, Afghanistan -- all this to the accompaniment of shorter military forays in Africa, Chile, Grenada, Panama.

So it should come as no surprise that there is no public "space" for dialogue on how to improve the quality of our lives. Such topics are subordinate to "how to make war." Congress under both Republican and Democrat control has voted the same war priorities into the federal budget.

Bob Herbert, the New York Times columnist, reports on 5.5 million young Americans age 16 to 24 -- without work in 2003 -- undereducated, disconnected from society's mainstream, restless and unhappy, frustrated, angry and sad. (4) This population, 5.5 million and growing is the product of America's national politics that has stripped away as too costly the very things that might rescue this abandoned generation and train them for productive work. But that sort of thing is now treated as too costly. So this abandoned generation is now left to perform as fodder for well-budgeted police SWAT teams.

The mayor of New York City presides over a New York Transit Authority that is now in the midst of spending $3-4 billion on subway cars. If this manufacturing work were done in the U.S. -- rather than by Kawasaki in Japan and Bombardier in Canada -- it would generate, directly and indirectly, about 32,000 jobs. (5)

But nothing was heard from the city government when, after announcing a request for bids for the $3 billion plus contracts, not one U.S. based firm offered a bid.

The production facilities and labor force that could deliver 6 new subway cars each week, could produce 300 cars per year and thereby provide new replacement cars for the New York Subway system in a twenty year cycle -- for the 6,000 railcar fleet of the New York subway system. Such a production plan would also replace traditional rebuilding of railcars that has occupied maintenance shops of the New York Transit Authority.

Well-trained engineers are required to design the key subway transportation equipments. Therefore we must take note of the fact that it is almost 25 years since the last book was published in the United States on these topics: Urban Public Transportation by Vukan Vuchic (Prentice Hall, 1981). What is true for the rail equipment industries is also true for every one of the industries targeted for deindustrialization during the second half of the twentieth century, and early twenty-first century.

Do you suspect I am exaggerating this portrait of gloom and doom? See for yourself. Go to the stores that now sell great arrays of "high tech" merchandise. Pay attention to the boxes for these goods, which typically state where the contents are made. Try the largest libraries and see if you can find texts that contain instruction for production of the products that have been disappeared from U.S. manufacturing.

At this writing there is a lack of schools, teachers and books dealing with rail transportation. Suitable textbooks will have to be translated from French, German or Japanese. In the United States, the traditional depositories of knowledge for these subjects have been wiped out. There are no workplaces that prospective workers can visit to become acquainted with the shape of a productive career devoted to making things, all of which are now imported.

We can learn something from the experience of the General Electric Company, in particular from the autobiography of Jack Welch. (6) He hailed the profits brought to GE by locating their largest R&D labs in India. From a careful biography of Jack Welch's stewardship of General Electric we learn that "GE has either closed or sold 98 plants in the United States during the Welch era, 43% of the 228 it operated in 1980." (7) More recently we learn from BusinessWeek (8) that General Electric will have 20,000 workers in India alone by the year's end, and is moving towards a "big China R&D center." The type of work which is being moved by GE to the India and China facilities include finance, information technology support, R&D for medical, lighting and aircraft. BusinessWeek reports, "for companies adept at managing a global workforce, the benefits can be huge. ... Now, American Express, Dell Computer, Eastman Kodak, and other companies can offer round the clock customer care while keeping costs in check..." For an array of major U.S. firms reviewed by BusinessWeek the trend of U.S. jobs being moved offshore is "a trend that's likely to grow." Here is the BusinessWeek forecast for 2005. (9)

LIFE SCIENCES                   3,700
LEGAL                               14,000
ART, DESIGN                      6,000
MANAGEMENT                 37,000
COMPUTER                     109,000
ARCHITECTURE               32,000
SALES                                29,000
OFFICE SUPPORT           295,000
TOTAL                            588,000

By 2015 the number of white-collar jobs of U.S. firms slated for "moving offshore" is expected to be 3,300,000.

While the cost of labor has been regarded as a central issue in labor-intensive manufacturing operations, the picture is rather different with respect to the production and utilization of capital goods. On January 1, 2003 the New York Times reported, "China has awarded a potentially lucrative contract to lengthen the world's first commercial magnetic-levitation rail system to cities surrounding Shanghai." All this after the prime ministers of Germany and China took a test ride on the new high-speed train, which is propelled by magnets. The Times reported that "The train reached its designated maximum speed of 266 miles per hour over the nineteen miles between Shanghai financial district and its main international airport?" The German firms that designed and produced the new Maglev train were Siemens and ThyssenKrupp. New Maglev trains covering 180 miles and costing more than $5 billion are being negotiated. The critical point here is: China, a country with one of the lowest wage rates in the world for industrial production work, is buying new railroad equipment from German firms which pay the highest production worker wage in the world. The full meaning of this situation has not registered in the United States. But the fact remains that high quality capital goods, backed by strong R&D justify their higher price.

There is no doubt about the main effects of a Permanent War Economy on the present and prospective production of consumer and capital goods in the United States. Myths, like a hoped-for inherent superiority for American-made goods, are simply melting away -- daily. For the colossal $379 billion military budgets now being organized in the United States will include funding new military bases around the world and the manufacture of a host of weapons of astonishing complexity and costliness.

All these take up the available "economic space." Thus the newest major aircraft program -- the Joint Strike Fighter -- is expected to cost as much as $750 billion, (10) a historically unmatched price. The new nuclear attack submarines, each longer than a football field, are now priced at $2.4 billion each. (11) Look at the maps published in our newspapers of new foreign location military bases built for American forces -- each of them magnificently equipped for an unstated, but long duration.

Anticipated costs of a U.S. war in Iraq reach a level of $682 billion. (12) This exceeds the combined cost for replacing severely damaged housing ($369 billion) and for electrifying the U.S. main line railroads ($250 billion). (13) The next Pentagon budget for 2004 promises to checkmate the most fundamental unmet needs in the United States for medical care, housing and the education of our children.

In President Bush's 2004 budget, the $379 billion military cost exceeds the sum of all other "discretionary" (non-mandatory) items in the Federal budget.

The publicly funded colleges and universities have been raising their fees every year toward the target level set by the Ivy League schools. None of this happens overnight, but the direction of development cannot be mistaken.

The United States is now a species of State Capitalism. The top federal government executives are a partnership of top political and corporate managers who operate a war economy to enlarge their power as their main continuing goal. The idea that the U.S. can afford guns and butter without limit is proven false every day. Unemployment levels that are the hallmark of deep depression are now visible as additional millions "leave" the labor force and are not counted as unemployed by the Federal government even though they are actually jobless. Hence 8% "unemployment" as counted by the Federal government actually refers to 16% jobless. Meanwhile the infrastructure of American society shows decay that can no longer be concealed despite the practiced showmanship of leading public officials.

All this cannot be blamed on any particular former president or congress, for they are all implicated. Since World War II they have all participated in furthering the Permanent War Economy.

Meanwhile America's corporate managers have been proceeding with their very own profit making business as usual. While millions of Americans suffered losses of savings and pension funds from the 2001-2 meltdown of corporate securities, the same events in the securities markets helped to create a new class of economic royalty. Corporate and government insiders used their positions to know when to buy and when to sell in the securities markets and thereby amass enormous personal profit. A new royalty was created, with royal outfitting: palaces (not just big houses); staffs of servants with butlers trained to oversee the underlings; lavish cars and other accoutrements as displayed in the New York Times advertising for luxury goods; etc.

What can we expect from the new American royals? Mr. Gary Winnick, once chairman of Global Crossing has shown the way. He gained a profit of $860 million by selling his company stock before the shares became worthless. (14) He told a congressional committee that he "would write a check for $25 million to cover part of the retirement money several thousand employees lost when the stock collapsed." Said Winnick; "I call on other chairmen and CEO's of other companies to step up and write a check." (15)

Meanwhile, as demonstrated in the American Society of Civil Engineers' Report Card for America's Infrastructure, the services from roads, bridges, transit, energy supply, drinking water, etc., etc. are all in deteriorating condition, deserving a combined Report Card rating of D+. (16) All this is an important indicator of the opportunity cost, of what has been forgone, as a consequence of the Permanent War Economy.

Further evasion is out of order. We must come to grips with America's State Capitalism and its Permanent War Economy. Failing that, there is no hope for any constructive exit. We must marshal the money and human resources that are needed to restore jobs and production competence -- industry by industry. That is why I called particular attention to the methods for reindustrialization as in the subway car manufacturing industry. Since all this is controlled by public money, an alert public, with energetic participation by alert unions, is strategically situated to trigger a reindustrialization process.

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1.  Seymour Melman, After Capitalism: From Managerialism to Workplace Democracy (Albert A. Knopf, 2001), Ch 3. also; SM, What Else Is There To Do? (National Commission for Economic Conversion and Disarmament, 1996.)  (back)

2.  Jon Rynn "Why Manufacturing Matters," see website: www.aftercapitalism.com/archive/de_re/ProductionCenteredEconomics.pdf  (back)

3.  "Indian Nurses Sought To Staff U.S. Hospitals," New York Times, Feb. 10, 2003.  (back)

4.  Bob Herbert, "Young, Jobless, Hopeless," New York Times, Feb. 6, 2003.  (back)

5.  Special Calculation by Dr. Greg Bischak, Senior Economist, Appalachian Regional Commission  (back)

6.  Jack Welch and John A. Byrne, Jack: Straight From The Gut (Warner Business Books, 2001) pp. 313-314.  (back)

7.  Thomas F. O'Boyle, At Any Cost: Jack Welch, General Electric, and the Pursuit of Profit (Alfred A. Knopf, 1998) p. 33.  (back)

8.  "Is Your Job Next?" BusinessWeek, (February 3, 2003). pp. 50-60  (back)

9.  Ibid p. 57.  (back)

10.  After Capitalism, pp. 100, 137, 140, 142, 143n.  (back)

11.  Department of Defense, Program Acquisition Costs By Weapon Type, p 41. see website: http://www.dod.mil/comptroller/fy2003budget/fy2003weabook.pdf  (back)

12.  "The Price We Pay," New York Times, Feb. 15, 2003.  (back)

13.  After Capitalism, Chapter 5.  (back)

14.  "Adding to Claims Against Global Crossing," New York Times, Jan.30, 2003.  (back)

15.  "Global Crossing Head Offers Workers $25 Million," New York Times, Oct. 2, 2002  (back)

16.  ASCE Report Card available at http://www.asce.org/reportcard/ [The cost to put major parts of the infrastructure in good repair will require an investment of $1.3 trillion.] (back)


Seymour Melman is the former President of the Association for Evolutionary Economics; Vice President of the New York Academy of Sciences; co-chair of SANE, Committee for a Sane Nuclear Policy; chair of The National Commission for Economic Conversion and Disarmament; and currently a participant in the Reindustrialization of the United States Project. He is now Professor Emeritus of Industrial Engineering, Columbia University, New York. His latest book is, After Capitalism: From Managerialism to Workplace Democracy, (Alfred A. Knopf, 2001). Selected papers by Seymour Melman can be found at AfterCapitalism.com.

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Published March 17, 2003
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