Page 4-Friday, January 13, 1978-The Michigan Daily
By SEYMOUR MELMAN
Pacific News Service
The twin plagues of unemployment and inflation that
confound today's economists could well become a permanent
part of the American economic landscape.
Both forces, which were presumed to be mutually exclu-
ive, are in fact rooted in the same all-pervasive war econ-
omy that has dominated American industry and productivity
for 30 years. And both forces, resistant to all traditional solu-
tions, will continue to sap the diminishing strength of the
American economy so long as military spending continues to
r ise and eclipse the consumer sector.
THE CONVENTIONAL WISDOM - that military spend-
ing stimulates the economy and provides greater employ-
ment - has in recent years been put to the test by various
studies that have concluded just the opposite. Pentagon
dollars, which now represent over 50 per cent of our national
budget, actually drive consumer prices relentlessly upward,
cause industries to become less competitive and cost Ameri-
can workers millions of jobs.
For more thai a century, one of the main strengths of
'American industry was its ability to offset cost increases by
redesigning products and production technology.
The result was improved productivity. American firms
-could pay their workers two to three times more than work-
ers in other industrialized nations, and still produce high-
quality goods at competitive prices.
BUT THIS CAPABILITY to offset cost increases has
diminished drastically, as the lion's share of American
capital and technology has been channeled to the military.
For more than 25 years, the Pentagon has received three-
quarters of the research and development money provided
by the federal government. It has been given more capital
each year than was left to the managements of all corpora-
tions after paying taxes.
As a result, the growth rate in American manufacturing
industries plummeted to record lows by the mid 1960s. In
1965, the national productivity growth rate had slipped to 2.1
per cent. By 1975 it was down to 1.8 per cent, the lowest rate
ever recorded in the U.S.
AT THE SAME. TIME, productivity was increasing in
other industrialized countries at a much faster pace. France,
Italy,, Germany, Belgium, Sweden, Switzerland, Japan, the
Netherlands, Canada and even financially troubled Great
Britain had much higher growth rates.
Another major cause of inflation is inefficiency promoted
by the Pentagon, which is the major customer for more than
.20,000 industrial firms that, in turn, employ another 100,000
firms as sub-contractors.
Unlike firms making products for civilian customers,
'these military-related companies do not seek to keep costs
down. They make more money by maximizing costs and
passing them on to the military as "cost overruns."
IN EFFECT, the government subsidizes these firms to
operate inefficiently. The special managerial, engineering
and internal practices demanded by them by the Pentagon
also drive up costs.
For instance, in 1972, U.S. manufacturing firms
averaged 42 administrative workers for every 100 production
workers. But /in the main Pentagon-related industries the
ratio was 69 administrators per 100 production workers.
This process also affects civilian industry, because
defense contractors are among the largest firms in this coun-
try, and most if not all, have civilian divisions.
Invariably, the same administrative and production
practices prescribed by their major customer - the Penta-
gon - are adopted by the civilian divisions of these com-
panies.
THE MILITARY often pays top prices for equipment and
raw materials, and allows its contractors lavish admini-'
The war economy foly
I
IN THE AUTO INDUSTRY, 13,700 American workers
lost their jobs by 1964 due to the growing number of imports.
But by 1972 nearly 96,000 auto workers were driven from their
jobs.
The situation is similar in other industries. In aircraft
equipment production, radio and TV manufacturing, the
clothing and shoe industries, in motorcycle and bicycle
manufacturing, in the production of semi-conductors and
sporting and athletic goods, American workers are losing
jobs because our industries have not kept pace with those of
other nations.
Even the devaluation of the dollar in 1972, which made
American laborless expensive in relation to foreign labor,
did not halt this trend.
The situation is further aggravated by the fact that our
industrial machinery is aging and not being renewed rapidly
enough. In October 1973 American Machinist magazine
reported that 67 per cent of the machine tools in use in
American industry were at least 10 years old.
THIS WAS THE OLDEST stock of metal-working
machinery in any industrialized economy. Older machinery
yields a lower rate of productivity, gives industry less oppor-
tunity to offset cost increases and gradually makes it less
price competitive.
This investors looking for money-making opportunities
discovered that civilian economic growth proceeds more
rapidly in countries that don't have war economies.
During the 1960s, Americans invested $47 billion abroad,
resulting in the transfer of between three and four million
jobs overseas.
It also has been shown that military spending generates
far less employment than does money invested in civilian in-
dustry. Dr. Roger Bezdek, a Department of Energy
economist, estimates that $1 billion spent on the B-1 bomber
would create about 58,000 jobs.
BUT THAT SAME $1 billion spent on law enforcement
would create 75,000 jobs. If it were spent on sanitation it
would yield 78,000 jobs; on mass transit 83,000 jobs; on con-
servation 88,000 jobs; and on education 118,000 jobs.
Thus when we overemphasize military spending in our
national budget we forego the creation of new jobs. One
estimate is that between 1968 and 1972, the nation lost an
average of 844,000 jobs each year because of its excessive
military spending.
This, combined with the jobs lost because of American
capital invested abroad, and the growing non-competitive-,
ness of our industry, brings the total effect of sustained heavy
military spending on our economy to between seven and ,nine
million lost jobs.
If we continue to produce economically non-productive
military goods and services at record rates, our economic
problems can only get worse.
The alternative is to transfer about 40 per cent of our
huge outlays for the military into areas like transportation,
the planned conservation and development of our natural
resources, environment quality control, improved health
services, education, economic development, law enfor-
cement and urban development.
Such a transfer can be achieved without an appreciable
effect on the ability of American military forces to meet their
commitments. In addition, it would serve to strengthen U.S.
security by increasing our output of economically productive
goods and services, by reducing unemployment and by
stemming the rising tide of inflation that today has become a
serious threat to the entire Western world.
Seymour Melman is professor of industrial engi-
neering at Columbia University and is author of numer-
ous books in the fields of defense and industrial pro-
duction.
k
strative facilities and salaries. It also requires specialized
and costly research, testing and manufacturing facilities.
As people transfer from military to civilian firms (or
from military to civilian parts parts of the same firm), they
carry with them the inefficient job performance practices
encouraged by the Pentagon.
Thisncost-maximizing work practices in both production
and management are routinely transferred from military to
civilian operations. This drives up costs all through the
economy.
Adding to the inflationary pressures has been our large-.
scale overseas military spending in support of wars and the
more than 300 U.S. bases on foreign soil.
THESE EXPENDITURES have resulted in a negative
trade balance, meaning we spend more outside the U.S. than
we take in by selling our goods to other countries.
The 1971 grain sale to the Soviet Union brought badly
needed dollars into the U.S. treasury and helped offset our
trade deficit, but it also drove up grain prices in the U.S.
Most economists have long believed that military
products and services have the same economic yalue as
other goods and services, and count them as part of our gross
national product.
NOW, HOWEVER, several economic critics have come
to the conclusion that military goods and services are ac-
tually economically non-productive.I
They do not enhance our standard of living, nor can they
be used to produce other things. They do have a very real
political and military value, but seem to lack true economic
usefulness because they cannot be consumed or used to
produce something else.
In addition, the people who produce these military
products and services are paid in dollars which they use to
purchase consumer and other goods. This results in greater
inflationary pressures, since these people do not contribute to
the supply of consumer goods, only to the demand.
Between 1946 and 1976, the U.S. spent $1 trillion, 600
billion for economically non-productive military goods and
services. This has generated constant upward pressure on
prices, and seriously weakened our economic base.
HEAVY MILITARY SPENDING also contributes to our
high unemployment rate. The diversion of capital and re-
search and development funds to the military has caused our
industries to fall behind those of other nations in product
design, production methods and productivity.
When this happens along with price inflation many U.S.
firms cannot compete and must close their factories. That is
why 20,000 steel workers, office workers and technicians lost
their jobs in the last half year. And that is why the U.S. now
imports vast quantities of steel, automobiles, railroad equip-
ment, consumer electronic products (TVs, computers),
quality optics, shoes and textiles.
When we import goods because they can be produced
better and cheaper abroad, we also reduce job opportunities
in this country.
The number of jobs lost because of our growing reliance
on imported goods increased dramatically between 1964 -
the year before the escalation in Vietnam - and 1972, the last
full year of direct American involvement.
Eighty-Eight Years of Editorial Freedom
420 Maynard S't., Ann Arbor, MI 48109
JOtters to
Vol. LXXXVIII, No. 85
News Phone: 764-0552
Edited and managed by students at the University of Michigan
A surprise an a sig
F ANYTHING was expected of the
year 1977, it was not that the unem-
ployment rate should drop to where
Jimmy Carter predicted it would. That,
however, is precisely what happened in
December, to the surprise of
economists and even of the President
Himself.
SIf only he had been so accurate with
his predictions on inflation.
: When Carter took office last
January, the number of jobless sat at
7.3 per cent of the labor force. The
President assured the nation in the wee
months of the year that unemployment
would drop to 6.6 per cent by 1977's end.
The administration grew quiet on that
prediction later in the fall, apparently
beginning to doubt the effectiveness of
their own economy-boosting efforts.
Happily, the Labor \Department said
Wednesday that the jobless rate fell to
6.4 per cent - the lowest it has been
since October 1974.
Carter can certainly revel in this
news if he wants to,. as can every
American, but he had better not get lost
in it. The sudden "drop" in the number
of jobless between November and
December is actually attributable to
the government's seasonal revisions of
figures, and not any spontaneous
growth in the number of jobs available.
What growth has occurred was expec-
ted by experts as part of seasonal job
patterns. In addition, minority groups
like blacks, despite advances in em-
ployment rates, still had to endure a
soaring jobless rate at year's end.
Still, administration economists
None of the proposed full employment
programs were implemented; in fact,
some plans imposed by Congress were
said to threaten the country's business
and industry. Analysts will no doubt
have their heyday trying to figure out
what happened.
W HILE THEY ARE looking at
those npmbers, they might as
well examine the latest wholesale price
index figures issued from Washington.
Unlike the employment statistics,
prices rose substantially in December,
jumping 1.5.per cent. That amount is
the largest increase since early last
year, and it will mean another round of
sharply high prices at grocery stores
and everywhere else.
Wholesale prices rose only 0.7 per
cent in November, and during the
summer, prices had hardly risen at all,
giving consumers a chance to catch up
on their checking accounts.
The spectre of another rise in infla-
tion over the next few weeks will cer-
tainly dampen the news of dropping
unemployment for the nation.
This is an old problem for Republi-
can and Democratic administrations
alike: how to increase employment
without spurring inflation, ' and
decrease inflation without igniting the
number of jobless.
Carter's chief economic advisor,
Charles Schultz, along with other
economists, have been urging the
President to continue his push for $25
billion in tax cuts in 1978, and this
makes good sense. Relief in taxes for
I~energy no crisis
To The Daily:
The so-called "Energy Crisis"
is still another example of the an-
ti-social character of capitalism
whose effects fall upon the
working class. Natural resources
are being wasted and squandered
because there is not enough
profits for the energy capitalists
to conserve them and in develop-
ing new sources of energy. Under
capitalism profits for the capital-
ist class come first regardless of
the welfare of the country and
people. Much of the natural
beauty of the country is being
devastated by strip mining and
water and air polluted by the
profit hungry energy capitalists.
We must not let this to go on. The
Socialist Labor Party calls upon
the working class to organize to
abolish capitalism before it is too
late and to replace it with Social-
ist Industrial Republic of Labor,
under which the means of produc-
tion will be socially owned and
democratically controlled,
wherein the emphasis will be
upon preservation of natural
resources and the development of
new sources of energy.
- Frank Troka
"
food stamps
To The Daily:
The federal food stamp pro-
gram has been with us for over
ten years. Millions of Americans
have benefitted from food stamps
including: Aid to Dependent Chil-
dren families, senior citizens,
students, handicapped citizens,
part-time workers and strikers.
The literal truth is that millions
of people count on food stamps to
alleviate high food costs.
I recently completed a survey
of Ann Arbor grocery stores, dis-
covering not all are authorized to
accept food stamps, including
several stores in the campus
area. Such authorization is easily
procured, simply by writing to
the Department of Agriculture.
Since food stamps are a legally
recognized collateral, serving as
Thel
a legitimate method of improving
and equalizing food allocation, I
think refusal to accept food
stamps is an infringement upon
the civil rights of users, many of
whom have no means of trans-
portation to shop elsewhere.
I call on members of the Ann
Arbor community to express
their personal feelings on the
issue by participating in a
boycott of the following stores: 1.
Kelsay's Market, Packard Rd.,
2. White's Market, Williams St.,
3. Farmer Grant's' Market,
Jackson Rd., 4. McCoy's Market,
N. Main St., 5. Manna Oriental
Foods, Broadway St., 6. Washte-
naw Milk Depot, Dexter Rd., 7.
Maize and Blue Matket, Car-
hardt Rd.
- John C. Steinbach
train drawbacks
To the Daily:
In response to your column by
al
Stu McConnell on "Why'
Americans Won't Ride Trains," I
would like to add some important
items that he left out.
First, trains are too expensive for
senior citizens and students-two
groups that would love to ride tr-
ains. Amtrak should have a rate
system for low-income groups
and a family plan to lure in
passengers.
Second, on, short runs people
avoid trains becauseof the in-
convenience of the stations. I
have often been on the Amtrak
run between Detroit and Ann Ar-
bor and both stations are too far
away from the downtown area.
If Amtrak wants to make it,
they have to follow Canada's and
Europe's lead - low cost
quality .rides with stations
located in the downtown area
(wouldn't you be inclined to ride
Amtrak to Detroit if it stopped at
the Renaissance Center?)
--Carol Habinskl
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