If Peace Comes

Peace in Viet Nam may still be a long way off, but even the prospect of negotiations has created a new mood for much of U.S. business. As they look toward war's end, most businessmen see economic possibilities that range from pleasant to dazzling. Says Economist Arthur Smith of the First National Bank in Dallas: "No single event would do more good for the nation's economy than ending the war."

Wall Street quite obviously agrees with the prognosis. President Johnson's March peace overtures gave the stock market its sharpest two-week surge in two decades. And last week the market quickly shook off the subsequent dip prompted by the Federal Reserve Board's increase in interest rates. The advance carried the New York Stock Exchange index of all issues traded on the Big Board to a record high of 54.26, up .87 for the week. "The only thing capable of reversing the prevailing psychology," says Analyst Robert T. Allen of Shearson, Hammill & Co., "is a complete breakdown in peace negotiations." A Dean Witter & Co. report reflected a widely held Wall Street sentiment: "A truly fundamental change has taken place in the investment outlook. Resolving the Vietnamese conflict would free the U.S. to attack domestic problems deferred too long--and will create great demands."

Fiscal Dividend. The Presidents Council of Economic Advisers estimates that peace in Viet Nam might permit a $15 billion decline in defense spending, stretched over 18 months. If so, the armed forces might well be reduced by 900 000 men to about 2,600,000, a little below their pre-Viet Nam strength. Up to a third of the returning veterans presumably would go back to school, leaving some 600,000 to help meet industry's need for skilled manpower. With lower defense spending, plus the ordinary growth of the economy, the CEA calculates that the Government will be able to distribute a $30 billion "fiscal dividend" to the nation. Part of it should be lower taxes to stimulate civilian demand, says the council, and part of it should be a rapid boost in federal outlays for education, health, housing, pollution control, highway beautification and the fight against slums.

"There is a transition problem of converting to peace," admits CEA Chairman Arthur Okun, "but we think we can handle that." One reason for his optimism is that for all its high price tag, the $29 billion-a-year Viet Nam war absorbs only 3% of the total national output of goods and services--only half the proportion consumed by the Kore an War. The total defense budget today accounts for only 9% of gross national product, compared with 41% at the height of World War II and 13% at the Korean peak. More important, the end of the Korean fighting caught Washington with a huge oversupply of military goods. And to make matters worse, peace plans were unready; cutbacks in defense spending led to a recession with a 6% unemployment rate before the economy rebounded. This time, the Pentagon expects to taper off procurement slowly, as it rebuilds its depleted stockpiles, and Government planners are already deciding how tax cuts and civilian-spending increases should be timed to stabilize the economy.

Uneven Impact. Of course, the optimistic view is neither unanimous nor total. Many experts think that unemployment may jump briefly from its present low of 3.6% to a range of from 4 1/2% to 5%. Painful though that would be to the workers affected, the situation would help to curb inflationary pay increases. Chicago Economist John Langum expects a drop in business inventories, corporate profits, personal income and consumer spending to add up to "a moderate recession." In any case, the impact of peace will hit industries, areas and manpower unevenly. Many industries likely to lose war business--autos, textiles, rubber, for example--are those that can readily turn to industrial and consumer markets. Automen predict a big demand for cars among discharged veterans, and the housing industry, now confronted with another pinch in its mortgage-credit lifeline, foresees a major upturn fueled by lower interest rates if peace comes. Such an upturn would also lift sales of appliances, furniture and retail stores.

Parts of the West Coast's aircraft industry, and the electronics complex situated around Route 128 near Boston, may well be troubled by the war's end. Yet many of the major defense contractors sound surprisingly cheerful. "Most people think we would suffer if hostilities ended," says Chairman Daniel J. Haughton of Lockheed Aircraft "Just the opposite is true. Only 5% of our business results directly from Viet Nam." Says President G. William Miller of Rhode Island-based Textron: "A 20% cut in our defense contracts could easily be made up with only a 10% increase in our civilian sales." One reason is that civilian sales yield higher profit margins.

Alcoa President John D. Harper figures that peace would cost his company only 5% of its present tonnage of sales, a loss that would be quickly overcome by such resurgent civilian business as construction and commercial aircraft Oil and steelmen are equally unworried. Says Gulf Oil Chairman E D Brockett: "We could get back to doing a lot of things we should be doing."

And Stability. Hanging over the bright prospects of peacetime business are the same clouds that trouble the economy in war: inflation and the imbalance of payments. "Our first priority must be to preserve the integrity of the dollar," warned President Rudolph Peterson of the Bank of America last week. "If we fail in that, we will be totally unable to solve our great domestic problems." Only 41% of last year's $4 billion U.S. balance of payments deficit--the chief source of the dollar's weakness abroad--arose as a result of the war in Viet Nam. Now, accelerating inflation is worsening the payments problem. Last week the Commerce Department reported that shrinking exports gave the U.S. a trade deficit of $157 million during March, the first since January 1963. As a result, the nation's normally robust trade surplus shriveled in the first quarter to a meager annual rate of $731 million, about a sixth of the surplus the U.S. achieved last year.

Thus it is no surprise that the immediate concern of many businessmen is that stability accompany peace when it comes.

This file is automatically generated by a robot program, so reader's discretion is required.