THE FUTURE OF THE U.S. DEFENSE INDUSTRY

Murray Weidenbaum

Contemporary Economic Policy, 1992, vol. 10, issue 2, 27-34

Abstract: Defense contractors in the United States face a painful choice between downsizing or investing in new high‐risk commercial ventures. Past experience reveals numerous failed efforts to penetrate commercial markets and few, if any, successes. The capabilities required to succeed in civilian business are fundamentally different from those needed to design and produce weapon systems. Defense firms and defense divisions of diversified corporations lack adequate knowledge of commercial products, production methods, advertising and distribution, financial approaches, and customer demand. Given the outlook for a sustained decline in U.S. military spending, the author advises companies catering to military markets to cut their costs by reducing excess capacity. Smaller but more competitive positions can be achieved through restructuring, mergers, sales of assets, and, if necessary, closing down unneeded facilities. Firms that ignore the pleas for “conversion” and do not dissipate their assets in civilian markets alien to them stand the best chance of surviving during a period of reduced military demand.

Date: 1992
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