WITH the demise of the Soviet Union and its evil empire, the foundation that supported the United States defense structure has crumbled. Not surprisingly, the media have recently been filled with stories of the demise of the military-industrial complex in this nation. Secretary of Defense Dick Cheney has been warning that defense spending will soon be lower in relative terms than it was before Pearl Harbor, and that additional cuts in defense will exacerbate the current recession.
One would expect that in this climate the stocks of defense companies would be tumbling like that of the major banks or the big three automobile makers. Not so. In fact, the stocks of such broad-based defense giants as General Dynamics, McDonnell Douglas, Lockheed, and Raytheon are doing very well. All four of these companies closed 1991 at or near their 52-week highs, and substantially above where they were a year ago, or even at the height of the cold war. For example, Raytheon stock is now trading at about $80 a share, 60 percent above its 1985 level and 18 percent above its 1990 close. The stock of General Dynamics more than doubled in 1991, while that of McDonnell Douglas grew "only" 88 percent.
There are two reasons for this apparent incongruity. First, like Mark Twain's death, the real decline in defense spending has been greatly exaggerated. Second, foreign military sales have more than made up for the decline in armaments sales to the American military.
DEFENSE spending for fiscal year 1992 will be $295 billion. In inflation adjusted dollars, this is higher than in any year between the end of the war in Vietnam and 1985. Moreover, by the middle of this decade, defense spending is projected to drop to "only" $255 billion. This is still higher than it was in 1982, when Ronald Reagan and Leonid Brezhnev were in power, and when the Soviet Union controlled Eastern Europe and Afghanistan and had considerable influence in such places as North Korea, Vietnam, S yria, Iraq, Angola, South Yemen, Cuba, and Nicaragua.
True, as a percentage of GNP, defense spending by the middle of this decade will be lower than at any time since Pearl Harbor, but in 1940 the US was spending less than $20 million a year on defense, not over $250 billion.
In 1989, American firms sold $12 billion a year worth of defense goods around the world. The following year, foreign military sales jumped to $18 billion. For 1991, they will come close to $40 billion.
In 1989, the Department of Defense purchased about $90 billion worth of material for itself from defense companies. Over the past two years, purchases by the American military dropped by about $5 billion a year. This is far less than the growth in arms sales abroad. If one combines American and foreign sales by US defense companies for 1991, they are actively higher than 1989, even after adjusting for inflation.
In 1986, the US Army bought $20 billion worth of equipment, $18 billion for itself and $2 billion for foreign governments. In 1992, the Army plans to buy $23 billion in arms, $8 billion for itself and $15 billion for foreigners. Sophisticated American weapons like the F-15, F-16, F/A-18, the M-1 tank, and the Patriot missile are being dispersed to the Middle East, Turkey, and South Korea in record numbers.
About 30 years ago, President Dwight D. Eisenhower warned us about the dangers of the military-industrial complex. Today we might ponder the warning again. That complex continues to keep defense spending near cold-war levels, even after we won the cold war, and spreads increasingly sophisticated American weapons around the world in the name of contributing to stability. This was the same logic that allowed Saddam Hussein to buy $50 billion worth of Western technology in the 1980s and continues to keep de fense stocks high and defense profits up.