When The U.S. Drops Its Defenses

WASHINGTON —  When Japan began to overtake the United States as the West’s leading financial power in the 1980s, Americans consoled themselves that U.S. military and defense-industry leadership, at least, was undisputed. Japan and West Germany couldn’t challenge us there. Not with the constraining memories of World War II--of Messerschmitts over the white cliffs of Dover and Mitsubishis over Corregidor.

The extraordinary probability of the 1990s, however, is that the company manufacturing Messerschmitts may be the world’s largest aerospace corporation, and the firm making Mitsubishis may not be far behind. The larger U.S. predicament is just as unnerving: a slow global decline going beyond individual perils-- lost electronics markets, slumping military exports and threatened worldwide U.S. military base closings--to the infrastructure of U.S. defense preparedness.

The domestic and international consequences of this dislocation could be huge. Jobs, technology and even future U.S. elections may be at risk. Aircraft and weapons systems now built in Burbank, Calif., and Bethpage, N.Y., may be replaced by others built far, far away.

The U.S. defense industry is beginning to suffer from adverse international trends not unlike those whipsawing other U.S. industries. Foreign competitors have been taking over overseas military and aerospace markets. Between 1982 and 1987, for example, military exports dropped by about 60%--from $22 billion to just $9 billion. “Large sales agreements . . . have virtually disappeared,” retiring Defense Secretary Frank C. Carlucci admitted in a recent report to Congress.

Countries such as Brazil and Israel have built a good business with Third World nations that would rather not buy from a great power like the United States. The United States is also losing international leverage from foreign military aid cutbacks: Countries getting less U.S. aid buy less U.S. equipment. There’s also no denying rising overseas disenchantment with local U.S. military bases and operational tie-ins with the U.S. military. Portugal, Spain, Greece, Turkey and the Philippines are all squeezing or terminating U.S. base arrangements--which usually means less reliance on U.S. equipment. It’s a little bit like the pullback of the Roman Empire 1,500 years ago. Rome, too, probably started losing local armor, chariot and catapult markets.

Unfortunately, the threat doesn’t end there. Countries that gained economic clout in the 1980s, such as Japan and West Germany, are getting interested in military production and commercial markets. They will let the United States carry the strategic and financial burdens of Atlantic and Pacific defense, but they want more of the commercial profits. If that sounds like a bad deal for the United States--it is.

But it’s also the emerging reality. West Germany’s Daimler-Benz, already in the aircraft business through its Dornier unit, is now acquiring Messerschmitt-Bolkow-Blohm, the country’s leading aerospace concern. Taking over MBB would make Daimler a $46 billion-a-year firm, much larger than the top U.S. aerospace giants--Boeing and United Technologies. And that’s just the beginning of Daimler’s ambitions. Company chairman Edzard Reuter recently said he would like to build ties and even cross-shareholdings with French, British and Italian defense contractors--such as British Aerospace, Aerospatiale and Dassault. The objective? To promote European integration and outpace U.S. competition.

Even the Japanese, limited by their constitution to defense outlays of just 1% of gross national product, are getting bigger ideas. It’s not that Tokyo wants a large Pacific military role; Uncle Sam can keep furnishing--and paying for--the defense umbrella, thank you. It’s the neo-mercantile potential. Japanese strategists are starting to suspect they might be able to take over military equipment markets the way they’ve grabbed global consumer electronics markets.

The numbers are scary. Back in October, several U.S. media published highlights from a confidential private sector memo circulating in Tokyo. Its author concluded that if manufacturing giants such as Mitsubishi Heavy Industries, Toshiba and Ishikawajima-Harima were to start exporting the aircraft and weapons they now build for Japan’s small armed forces, the economic payoff could be enormous. In less than a decade, the memo said, Japan could control 45% of the world’s tank and motorized artillery market, 40% of military electronics purchases, 30% of the aerospace market and 60% of warship construction. Nervous U.S. policy-makers privately worry that any such Japanese emergence in armaments would not only jeopardize American defense capabilities but would threaten the already thin U.S. edge over foreign rivals in basic technologies.

The Pentagon, for its part, is so concerned about defense production based in the United States migrating overseas--like other manufacturing--that it’s relaxing the unofficial rules regarding foreign takeovers of U.S. defense contractors. Up to a point, they will now be permitted--except where West German and Japanese firms are involved. Besides lingering World War II sensitivities, U.S. policy-makers--and voters--have been offended by two recent episodes: a subsidiary of Japan’s Toshiba Corp. sold secret military technology to the Soviet Union, and a small West German chemical firm, Imhausen-Chemie, was helping Moammar Kadafi build a chemical warfare plant in Libya.

None of this, however, is stopping one of Messerschmitt’s U.S. subsidiaries--Conventional Munition Systems Inc.--from emerging as a prime subcontractor to General Dynamics on key missile programs. Its president, a retired U.S. general, recently said U.S. subsidiaries of foreign companies would be allowed to take over defense subcontracting because, “Congress is afraid of the same thing I’m afraid of--the migration of our technology and skills overseas.”

Yet, Congress is simultaneously afraid of giving away U.S. technology as the unacceptable cost of negotiating joint military production deals--like the one just made between General Dynamics and Mitsubishi to co-produce Japan’s new jet fighter.

The problem, alas, is there may not be any real “best interest” left after the financial recklessness and false “Morning Again in America” of the 1980s. The Japanese won’t just buy U.S.-made fighter planes --being our principal creditor, they no longer have to. As a concomitant of lending the United States so much money to fund its various deficits, Tokyo can demand better commercial arrangements--conceivably insuring that disadvantageous U.S. technology transfer will be yet another ramification of Reagan-era budget deficitry.

In a direct military sense, of course, Japan can’t displace the United States as the leading Pacific military power--and scarcely wants to. The longer the United States maintains that role, going deeper into debt to Tokyo to protect what is becoming a Japanese commercial sphere of influence, the more Japan can consolidate its emergence as the world’s leading financial and trading power. Some Americans recognize this. One expert, Clyde V. Prestowitz, former counselor to the Commerce Department in the Reagan years, lamented, “This is surely the first time in history that a territory in the process of being colonized (the United States) has actually paid for the right to defend the colonizer (Japan).”

Exactly. And until today’s U.S. economic and strategic laxity changes, defense and aerospace power, together with its supporting commercial infrastructure, could well ebb away just as surely as the manufacture of televisions, toasters and textiles.

Back in the early ‘80s, when hard times devastated Pennsylvania steel towns and Carolina textile mills, top Reagan Administration officials all but shrugged off that pain as the price of progress. The United States wasn’t in trouble. America’s future lay in high-tech, so low-tech industries had to downsize. Six or seven years later, however, it’s these high-tech future industries that are squirming as laissez-faire U.S. capitalism goes head-to-head with the state-guided--or state-supported--capitalism of Europe and East Asia. Too many industries have been strangling in the Adam Smith ties worn by Reagan free-marketeers; now they’re openly calling for Washington help or research collaboration--in semiconductors, biotechnology, superconductors, supercomputers and even high-definition TV.

It all adds up to a threat the new Administration has to take serously. Without tough-minded economic strategic thinking, there’s the possibility that morning again for Messerschmitt and Mitsubishi could turn out to be sunset for Santa Clara and bedtime for Burbank.