The Solicitous Giant

During his stay in Lilliput, Lemuel Gulliver had to be on his guard all the time to avoid harming the inhabitants. He was so enormous that a careless step could demolish a building.

The men who run the U.S. Defense Department, said Deputy Defense Secretary Roswell L. Gilpatric in a recent speech, "sometimes feel like a Gulliver among the Lilliputians." Spending upward of $50 billion a year, nearly 10% of the entire gross national product, the Defense Department is an economic giant that dwarfs the biggest of corporations. Its decisions on where and how to spend its money can mean prosperity or pinch for business firms, cities and entire regions.

The Piano Impact. The explosive postwar prosperity of California has largely resulted from a widening share of the Pentagon's contract awards. California currently accounts for 24% of the dollar value of all prime defense contracts, as against 14% a decade ago and less than 10% during World War II. The defense business concentrated along Route 128 in the Boston area has enabled Massachusetts to recover from the textile industry's migration to the South. But Midwest defense business has dwindled drastically, leaving pockets of economic slack and high unemployment. Five Great Lakes states, Ohio, Indiana, Illinois, Michigan and Wisconsin, produced 32% of the nation's defense output during World War II; today the figure is a meager 12%. During that span, Michigan's share of total defense production has plummeted from 10.5% to 2.7%, and the state for several years has been in financial distress.

For a city heavily involved in defense business, winning or losing a big Pentagon contract is a momentous event, good or bad news not only for defense workers, but for numerous breadwinners, from bankers to beauticians, whose livelihood is affected by the city's prosperity. During the $7 billion TFX fighter-plane competition between Boeing Co. and General Dynamics Corp., the outcome was awaited with mingled fear and trepidation by thousands of people in the two cities that stood to gain or lose the most: Wichita, Kans., where Boeing's principal plane-making facilities are located, and Fort Worth, Texas, site of main General Dynamics airplane plants. The economies of both cities had been crimped by the phasing-out of bombers last fall, the 6-52 in Wichita and the 6-58 in Fort Worth.

When the Pentagon announced that General Dynamics had won the TFX award, a fog of disappointment settled upon Wichita. In Fort Worth, which expects that half of the $7 billion total will be spent there, a department store blared the news to customers over loudspeakers. Piano dealers report that several customers who had been postponing purchases came in and bought pianos the day after the contract was announced. During the following four months, 2 1/2 times as many houses were sold in Fort Worth as in any similar period in the city's history.

Something like Sex. The old problem of economic bolts and jolts resulting from Pentagon decisions has intensified under Defense Secretary Robert McNamara. The defense budget has kept getting bigger, the pace of technological change has accelerated, and McNamara himself has done a lot of shaking up in an effort to trim costs. He has scrapped several development projects, including nuclear-powered aircraft and the Skybolr air-to-ground missile, and ordered 70 defense installations shut down.

Because so much is at stake, Pentagon decision makers must wrestle with incessant efforts to influence them. Lobbying for defense contracts is a major industry in Washington. Senators and Congressmen with military bases or defense plants in their states or districts try to exert influence on behalf of their constituents.

Trying to eliminate such pressures, says Deputy Secretary Gilpatric, "would be as futile as an effort to eliminate interest in the opposite sex among teen-agers."

McNamara has repeatedly declared: "We will not be influenced." Yet even Mc Namara has become increasingly aware of the effect of his decisions, has taken steps to soften the impact.

In Disguise. He has established the Office of Economic Adjustment. To towns and cities afflicted by the closing of bases or the termination of contracts. OEA sends teams of experts to study the local economy, meet with officials and businessmen, and help work out community programs. Sometimes OEA adds a dollop of federal aid. The Defense Department has no funds of its own for grants or loans to communities, but it is able to channel help from the Commerce Department's Area Redevelopment Administration and other dispensers of federal largesse.

Often, however, OEA's assistance consists solely of advice. The OEA team sent to Wichita, for example, drafted a recovery plan urging the city to expand meatpacking and grain-handling activities and increase oil and gas production, but OEA gave Wichita no material aid. Robert F. Steadman, head of OEA, found Wichita's economic resilience "absolutely astounding." Despite the steep decline in bomber production, the unemployment rate last fall was only 3.8%, well below the national average.

Steadman takes a special pride in OEA's work in Presque Isle, Me. Soon after taking over at the Pentagon, McNamara ordered the shutdown of Presque Isle's principal source of income, an Air Force base for obsolete Snark missiles. An OEA task force flew into town, worked out development plans with local leaders. Since then, Presque Isle has acquired 1) a new state vocational school, housed in former Air Force buildings; 2) a new junior high school, being built on land donated to the town by the General Services Administration; 3) a free airport and 4) three new manufacturing plants. Says Steadman: "The people there now tell us that closing the base was a blessing in disguise."

Project 99. While OEA can do an effective job in small arenas, it cannot make a significant dent in such massive dislocations as the shift of defense contracts from the Midwest to the West. In search of ways to help smooth out the bigger economic bumps, McNamara ordered a study of the factors that account for the heavy concentration of Pentagon research and development contracts in a few university-rich areas--such as the Boston region, drawing upon Harvard and M.I.T., and the Southern California complex, centering around Caltech and U.C.L.A. Assigned to the Stanford Research Institute, the study is potentially important not only because R. & D. is a big business in itself, but also because the area that gets the R. & D. contract often gets the production contract too. By analyzing the distribution of R. & D., the Pentagon expects to be able to advise communities with a small or dwindling share of defense business on how they might get more.

Another McNamara undertaking, called Project 99,*is peering into the future in an effort to map out Pentagon procurement shifts over the next five years so that the Pentagon can warn communities ahead of time of probable declines in defense business. "It's our own kind of early warning system," explains a Pentagon official. Warned early, communities would presumably make plans to fill in the economic gaps.

In short, Gulliver is treading carefully, peering intently and sounding alerts so as to avoid harming the Lilliputians.

*It was 99th on a list of projects that McNamara got drawn up shortly after he took over as Secretary.

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