Environmental Market to Eclipse Arms Exports

[Lenny Siegel <lsiegel@cpeo.org>]

Here are the press materials for an important new report underscoring
the significance of the environmental technology export market. - Lenny

May, 1998 Contact: Miriam
Pemberton

202-234-9382 ext. 214;
 or Michael
Renner

516-369-6896

New Report Shows Arms Exports the Economic Loser:

Environmental Market Bigger Now and Expanding Its Lead;

Government Favors Arms Exports By 12 to 1.

 Rule #1 of Market Competitiveness is surely this: concentrate
resources on growth opportunities. A new report turns up a glaring
violation of this rule at the heart of U.S. trade policy. The $400
billion-plus world market for environmental technologies is currently
double the size of the world market for all types of military hardware.
All forecasts for the global envirotech market point to continued strong
growth; none, on the other hand, predict much of a rebound for the world
arms market from its 40% post-Cold War decline. Yet the report
documents
that we are spending twelve times as much promoting U.S. arms exports as
promoting our exports of environmental technologies.

 Support for the envirotech industry has been a key part of the
Clinton Administration's strategy to broker the fight labeled "jobs vs.
environment": an effort to diffuse the argument that environmental
protection is bad for business, by focusing on the new business it can
create. The report, A Tale of Two Markets: Trade in Arms and
Environmental
Technologies, buttresses the case for this strategy, analyzing the
strongest domestic and international envirotech market opportunities,
and
highlighting a U.S. envirotech jobs base nearly twice the size of the
one
supported by arms manufacture. But by comparing the federal programs
devoted to developing and promoting the technology of these two
industries,
the report also shows that "On economic grounds alone," as co-author
Miriam Pemberton said, "we are backing the loser, by continuing to
invest
so heavily in a shrunken arms market and neglecting stronger
opportunities."

 The Administration's arms trade policy is heavily closeted and
heavily endowed. "Despite candidate Clinton's expressed interest in
restraining this trade," says co-author Michael Renner," his
Administration
has quietly bestowed on the arms industry virtually its entire wish list
of
new export supports-including the biggest potential market-developer of
them all: NATO expansion." Our envirotech trade policy is the mirror
image: lavishly discussed, but underfunded. The report examines the
political forces that have created a policy so at odds with our economic
and environmental self-interest, and what can be done to bring them
together.

 For further details on this report, A Tale of Two Markets: Trade in
Arms
and Environmental Technologies, call the Institute for Policy Studies at
202-234-9382 ext. 214 for a two-page list of its findings, a three-page
Executive Summary, and/or a copy of the full report.

**************************
Findings

A Tale of Two Markets:
Trade in Arms and Environmental Technologies

a new report by Miriam Pemberton
 and Michael Renner

* Market Strength. The $400 billion-plus world market for environmental
technologies is already twice the size of the world market for all types
of
military hardware. The envirotech export market ($45 billion) exceeds
the
arms export market ($32 billion) by 50%. Market prognosticators
forecast a
strong growth trajectory for the world envirotech market, matching or
exceeding its current growth, and outstripping the growth rate of the
global economy as a whole; no forecast predicts any substantial rebound
in
world military spending from its 40% post-Cold War decline.

* Some Exports More Equal Than Others. The U.S. government spends $12
promoting arms exports for every dollar it spends promoting envirotech
exports.

* Backing a Loser. This fact helps explain why, even though the world
envirotech market is twice as large as the arms market, U.S. export
revenues from the two industries are about equal. In recent years the
envirotech export market has grown faster than the domestic market, but
U.S. companies have been slow to change their primary domestic
orientation,
in part because government assistance has lagged behind what the
governments of major competitor countries like Japan, Germany, the UK,
Canada, France and Korea have provided. Meanwhile, U.S. arms exporters'
command of a shrunken defense pie has been enhanced by an array of new
support programs during the Clinton years.

* The Jobs Argument. Arms manufacturers argue that near-Cold War levels
of
military spending and increased arms export subsidies are necessary to
save
jobs. Yet twelve times the subsidy is currently supporting only about
as
many arms export-related jobs-an estimated 350,000-as are derived from
envirotech exports. Meanwhile the U.S. envirotech industry as a whole
employs an estimated 4.3 million people, up from 2.8 million in 1985,
compared to the arms industry's 2.3 million, down from 3.7 in 1987.

* Bang for the Buck. As worldwide military spending has fallen in the
post-Cold War period, federal subsidies underwriting American arms
exports
have come to make up more and more of the industry's profits. One
dollar
of every two in arms export revenues is now coming from U.S. taxpayers.
For the envirotech market, by contrast, one public dollar spent on
export
promotion generates $25 in revenues.

* The Policy Scale. R&D and procurement spending, regulation, and
technology verification are the principle tools that government can use
to
help develop the technologies available for export. With the exception
of
regulation, far more federal muscle has been applied behind each of
these
tools in the service of military than of environmental technologies.

* R&D Balancing. The Clinton Administration's goal of bringing federal
R&D
spending on civilian priorities to parity with military R&D has yet to
be
met, but would be if its ambitious "Research Fund for America,"
including
the R&D spending in its Climate Change Initiative, is fully funded in
the
FY1999 budget.

* Conversion Happens. Defense technologies are being converted to
environmental purposes, though on nothing like the scale dictated either
by
the relative market potential of each, or the technological
compatibilities
between them. Government actions that have helped create these examples
of
success include spending on cleanup at military bases, technology
transfer
mandates at the federal labs, and an array of other small federal
civilian
R&D programs.

* The Regional Fit. Technology fits between the two industries are
complemented by a regional fit: the states where the envirotech industry
is
strongest-California, Texas, Massachusetts, New York, Florida, and
Pennsylvania-are also the most defense-dependent states.

* The Political Heavyweight Got Heavier. By encouraging and subsidizing
consolidation in the defense industry, the Administration has not only
threatened price competition (tacitly, and belatedly, recognized in its
fight against the Lockheed Martin-Northrup Grumman merger) but
consolidated
the power of the industry to work its will over the political process.
The
envirotech industry, fragmented as a collection of small businesses
working
in disparate technological realms (rather than integrated in systems),
is
hard pressed to compete with this, in the fight over federal dollars.

* Anachronisms. Nearly ten years ought to be enough time to move our
economy away from its Cold War footing, toward such priorities as
environmental sustainability. Yet:

 * Despite the disintegration of our Cold War rival, the U.S.
continues to spend far more on its military than is spent by all of the
replacement candidates (China, Russia, Iran, Iraq, North Korea, Libya
and
Sudan) put together.

 * The chair of Royal Shell-UK recently predicted that renewable
energy sources could supply half the world's energy needs by 2050. Yet
even if the Clinton Administration's plan to increase R&D spending for
these sources succeeds-and it is encountering stiff opposition in
Congress-
federal subsidies for fossil fuels would still outweigh renewables by
five
to one.

 ***************************

Executive Summary

"We seek a transformation of our industrial economy into an economy that
leads the world in demonstrating that economic vitality, environmental
quality, and resource sustainability are simultaneously achievable."

 John Gibbons, Assistant to the President for
Science and Technology, opening a White House Conference on
Environmental
Technology, December 11, 1994.

The Clinton Administration has always looked at environmental technology
as
one of the keys to accomplishing this ambitious goal of economic
transformation: the way to counter the assumption that environmental
protection is bad for business, by focusing on the new business it can
create. During the first term the Administration created a number of new
institutions to support this emerging industrial sector. The backlash
against environmental spending in the 104th Congress, however, derailed
most of their plans to back up these new entities with real money.

New momentum for this effort has come from the national
consciousness-raising during the past year about the problem of climate
change. The Administration's 1999 budget features a plan to spend more
than a billion a year on tax incentives and research and development to
address the problem. This spending will help underwrite an expansion of
such segments of the environmental technology industry as renewable
energy
sources, clean cars and energy-efficient building materials, and thus
move
us in the direction of that "transformation of our industrial economy."

A billion a year will not move us very far, however, and will hardly
transform a nine trillion dollar economy. This report argues that the
way
to bring the rhetoric of economic transformation into line with the
resources needed to achieve it is to bring our industrial policy in line
with the historic transformation of our time. Nearly ten years after
the
end of the Cold War, we have yet to move away from a military industrial
policy that continues to absorb over eighty percent of what we spent on
average while we still had a Cold War adversary, and far more than is
spent
by all of the current replacement candidates-Iraq, Iran, North Korea,
China, Russia, Libya and Sudan-put together.

Even our intelligence establishment-an invention of the Cold War that
failed, or refused, to see the end of that war coming-now identifies our
most pressing security threats coming not from any major military
adversary, but from such sources as environmental degradation of land
and
water and the poverty that attends it-threats that may lead to war but
are
not susceptible to military solutions.1 For these reasons of national
security alone, therefore, we need to replace our current industrial
policy, dominated by anachronistic military goals, with one focused more
centrally on "the transformation of our ... economy ... to
environmental
quality, and resource sustainability."

The principal message of this report, though, is that by making this
change
we would be serving not only our national security interests, and the
interests of life on earth, but our economic interests as well. The
world
market for environmental technologies is already twice the size of the
world arms market, and is clearly one of the major growth opportunities
of
the next century, and one in which U.S. companies have considerable
competitive advantages. The arms market on the other hand, which has
shrunk drastically in the post-Cold War period, is projected even by the
Defense Department to remain sluggish at best in the foreseeable future.
By the dictates of market logic alone, therefore, our choice between the
two as priorities for industrial investment could hardly be clearer.

And as the report also shows, our current policy is a long way from
making
this kind of economic sense. In outlining our current industrial
policies
toward these two sectors, this report follows the Administration's lead
in
focusing most of its attention on trade. The goal of increasing exports
has
occupied a central place in both the Administration's foreign and its
economic policy, posed as the solution to an unprecedentedly large
constellation of national problems.

While officially our trade promotion institutions pursue this goal with
equal zeal across all sectors, a look at where resources are allocated
makes clear that some sectors are more equal than others. Though the
Administration has devoted far more rhetorical attention to the
potential
for expanding our trade in environmental technologies, it continues to
direct far more money toward the arms trade. This report documents that
in
1995, the U.S. spent twelve dollars promoting our trade in a stagnant
arms
market for every dollar we spent promoting our trade in the growing
market
for environmental technologies. By this staggeringly large margin, in
other words, we are backing the economic loser.

To make the case for a new post-Cold War mission, underwritten by a new
industrial policy, this report:

 1. Outlines the dimensions of these two markets. It assembles
available data on the overall size as well as the regional shape of the
world arms market, the employment generated by it, and the forces
influencing its meager prospects for growth. Turning to the
environmental
market, it gives special attention to analyzing which regions will
constitute the most promising export opportunities, for which segments
of
the industry, as well as the current obstacles to expanding this market
to
match the size of the environmental challenges we face.

 2. Outlines U.S. industrial policy toward each market,
explaining
the functions of government programs that influence the development of
each
of them on both the supply and demand sides, both domestically and
internationally.

 3. Examines the political dynamics that have rewarded the arms
trade over the envirotech trade out of all proportion to the respective
value of each to our economy. It outlines the rationale for an
industrial
policy focused on sustainability, and the broad array of constituencies
that constitute its potential base of support.

 4. Examines the costs and tradeoffs of our current ardent
pursuit
of the arms trade, according to the measures of national security,
employment, social wellbeing, and governance.

 5. Outlines the means to make the transition from an industrial
policy dominated by military objectives to one focused more on
reconciling
economic vitality with environmental sustainability. It examines both
the
broad fiscal shift that will be required, and the technological
compatibilities that will permit the conversion of defense technologies
to
environmental purposes.

In his 1998 State of the Union address the President decreed, in the
name
of fiscal responsibility, that no new spending should be contemplated
without the offsetting spending cuts to pay for it. So be it. The
change
in industrial policy outlined here can be undertaken by redirecting
existing resources, and will permit us to do well by doing good: to get
better economic returns by serving more compelling public needs.

--------------------------------------------------------
The National Commission for Economic Conversion and Disarmament
733 15th Street, NW Suite 1020
Washington, DC 20005
Phone: (202)234-9382 ext. 214
Fax: (202)319-3558
Email: ncecd@igc.org
WWW: http://www.webcom.com/ncecd/