Do We Need Special Federal Programs to Aid Defense Conversion?

by C. Richard Neu, Michael Kennedy

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It is in the national interest to ease the transition of industrial resources from a military to civilian focus. Are special federal programs necessary to accomplish this? This issue paper examines arguments that defense conversion requires a different response from that to normal industrial turnover. The authors conclude that there is no good justification for programs designed to aid only the conversion of defense industries. They suggest that government assistance should be triggered by any economic dislocation, regardless of its cause or the particular industry affected. They claim that the economy would be better served by policies that improve the quality and flexibility of all U.S. workers and that reduce barriers to the movement of people and resources among all its sectors. They also caution that to the extent that government polices shield workers, managers, or investors from the consequences of changing economic circumstances, these policies weaken incentives for the decisions that will finally result in the conversion of resources to new and productive uses. Excessive efforts to ease the pain of conversion only slow it.

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