Easing off on outlays for arms poses hopes for policing deficits

THERE'S a shift away from military solutions in the world. ``They don't work as well as they used to,'' says Mark P. Vitner, a research economist with Barnett Banks Inc., in Jacksonville, Fla.

If peace does spread further, it will have solid economic consequences. The end of the Iran-Iraq war had its impact on the market for oil, as well as raising economic prospects in those two Middle East nations. An end to fighting in Angola and Afghanistan could put these two nations on a path of greater prosperity.

Developing countries spend about $200 billion a year on the military, money that could be spent on human welfare if not used for defense or aggression. That amounts to about $50 a head, a sum that's not chicken feed when annual incomes may run a few hundred a year.

But the really big bucks are expended by the industrial nations. If tensions between East and West should ease decidedly, it could result in major budget saving. That, however, will take time.

Mr. Vitner points out that even before the visit of Mikhail Gorbachev to the United Nations in New York, the defense buildup in the United States was over. New orders for defense hardgoods peaked in 1986. Now they are running 7.2 percentage points below that peak level. Several defense companies have announced mergers or reorganizations. Defense manufacturers have trimmed the number of their employees by more than 20,000 since the start of this year.

Moreover, the Defense Department has cut 67,000 civilian jobs over the past 18 months. The number of active-duty military personnel has been reduced by 35,000.

President Reagan's final budget proposal will call for spending $319 billion on the military in fiscal 1990, the year that starts next Oct. 1. This is up 2 percent from the previous year after adjustments for inflation. It's widely assumed, though, that Congress will reduce defense spending from that level, probably even below the level-spending plan (in real terms) proposed by President-elect George Bush during the election campaign. With Mr. Gorbachev making significant unilateral troops and arms cuts, the defense budget becomes definitely more vulnerable.

Data Resources Inc., a Lexington, Mass., economic consulting firm, is assuming a decrease in defense spending of more than 2 percent in real terms, or about $7 billion. This means that Congress will allot $312 billion for defense in fiscal 1990, up from $306 billion in 1989.

Sam Nakagama, a Wall Street economist, sees Gorbachev's bold move - ``and others to come'' - as leading to zero growth in defense expenditures in nominal terms, or an annual decline of about 4 percent in real terms.

``Such reductions in defense spending levels would take care of about half of our deficit-reduction needs over the fiscal 1990-93 period,'' he reckons.

Budget pressures have already prompted Congress to keep a tighter lid on Pentagon expenditures. ``Increases in defense budget authority, which influences outlays in future years, have not kept pace with inflation since 1985 and are not likely to do so through the end of the decade,'' says Vitner, at Barnett.

Moreover, Congress has passed legislation making it easier to close unneeded military bases. Reports from Washington hint that a Pentagon commission will recommend closing 24 bases when it reports Dec. 30. If this is accomplished, perhaps starting in 1990, it could eventually save as much as $5 billion a year.

Much bigger savings could come if the US and the Soviets do agree on substantial disarmament. Last week Mr. Bush indicated he would not be rushed in this area. His administration, he said, would not be ready to resume strategic arms reduction talks by mid-February, as Secretary of State George Shultz has proposed. But the budget deficit does put pressure on the President-elect to seek arms cuts. If such talks do produce results, say late next year, they are unlikely to have any direct effect on budgets until that for fiscal 1991. The size of the defense budget cuts would depend on the extent of disarmament the two superpowers can agree upon.

Certainly the improvement in peace prospects makes reduction in the budget deficit a less difficult task.

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