WITH McDonnell Douglas's recent announcement that it will eliminate 4,500 mostly white-collar jobs in the St. Louis area, Missouri joins California, Massachusetts, New York, and Texas as bellwethers of the economic consequences of peace. With about $5 billion of defense contracts annually, 40,000 employees, a $1.6 billion annual payroll, and dozens of local subcontractors, McDonnell Douglas is the economic engine of St. Louis. According to research done by the New York-based Council on Economic Priorities, how this large company, other top defense contractors, local and state governments, and the federal government respond to the new defense environment could create the template for a healthy adjustment nationwide.
What companies are doing. For giants like McDonnell Douglas and General Dynamics, as well as thousands of subcontractors dependent on them, defense cuts make paring back inevitable. Many are adapting for a new ``battleground,'' the commercial marketplace. Others are softening the blow for employees.
Hughes, which is cutting several thousand jobs, is paying employees to take courses leading to other careers. General Electric, the state of Massachusetts, and the federal government jointly funded a labor retraining center in Lynn, Mass., for former employees at GE's aircraft-engine plant. McDonnell will offer job fairs and r'esum'e services, and will also work with municipal and county agencies.
McDonnell Douglas, GE, and Hughes are big and well-heeled. But tens of thousands of small subcontractors - 170,000 according to the Labor Department's Small Business Administration - may need special attention from policymakers.
Defense companies trying to crack commercial markets should:
1. Find fits for existing products. For the last two years Electronic Warfare Associates of Alexandria, Va., sold sophisticated voice-recognition devices to intelligence agencies. Lately they've diversified, selling offshoots to day-care centers, where staff use them to verify children's parents by telephone. Quantic Industries of San Carlos, Calif., specialized in digital image processors for missile target acquisition systems. It sells machines using the same technology to fast food companies to sort out bad french fries on conveyor belts.
Having the technology is one thing, turning a profit is another. McDonnell Douglas and Boeing are riding the crest of the world boom in commercial airliners; only Boeing is making money, though.
2. Plan for change before defense cuts. Many companies think booms don't end. They do. According to a survey of small Ohio contractors, contracts averaged one year or less. Foresight about declining defense budgets and having products that had both military and commercial uses - hydraulic systems for aircraft - helped Frisby Airbourne of Freeport, N.Y., cut its defense-dependency from 95 to 20 percent between 1985 and 1990.
3. Understand the commercial marketplace. The action is fast-moving; someone is always challenging with a better, cheaper product. In defense contracting, cost is secondary to designing products that can perform under adverse conditions.
Some observers suggest the Pentagon break down barriers between commercial and defense markets. According to former Deputy Assistant Secretary of Defense Jacques Gansler, not only do many defense and commercial product lines overlap - for example, in electronics - but the Pentagon could benefit from recent commercial advances. The Defense Science Board revealed that standard commercial microchips were 5-10 years ahead of military versions and just as rugged.
Norman Augustine, CEO of Martin Marietta, says if the Pentagon filled more of its needs by buying ``off-the-shelf,'' companies could use the same technology, products, and labor to meet demand in both markets.
States and localities. On July 19 the St. Louis Regional Commerce and Growth Association launched a program to retrain and reemploy dislocated workers in growth industries, and to diversify the local economy. Resources would come from preexisting municipal and state programs, such as the Missouri Customized Training Program as well as the Pentagon's Office of Economic Adjustment (which has a good track record for helping out communities facing military-base or contractor cuts).
Ohio has held fairs to introduce its myriad small- to mid-sized contractors to business opportunities with other government agencies, as well as the commercial markets.
Washington's role. Legislation is being crafted to ``buy off'' defense workers and defense-dependent communities to military spending cuts. Its main elements include voluntary community and defense-contractor planning, extension of unemployment insurance, and a modest beefing up of already existing economic-development and adjustment programs run out of the Labor, Agriculture, and Commerce departments and the Pentagon's Office of Economic Adjustment.
Much remains to be done. The adjustment process has to constructively engage companies, labor unions, communities, local and state governments, and the federal government, in order to prepare for a productive peace.