Here's a Fat Candidate For the Line Item Veto

It's a little ironic that the military, an organization credited for having won the cold war, still embraces an economic philosophy most at home in the former Soviet Union.

But as a recent Congressional Budget Office (CBO) study reports, the military's vast network of subsidized enterprises squanders resources as profligately as any state-run economy.

So even as President Clinton used his new line-item veto power Monday to trim excess fat from the military's budget, it's going to take a lot more than tinkering to bring military spending under control.

The Department of Defense Commissary Agency (DeCA), the military's chain of on-base supermarkets also known as military PXs, may well be the worst offender. Propped up by a $1 billion annual appropriation from Congress, DeCA's sales volume actually makes it the nation's eighth-largest supermarket. (But while tax dollars make military goods cheap, civilians can't take advantage of the bargains.)

Yet unlike the A&Ps of the world, which must compete on the narrowest of profit margins, DeCA's federal largesse allows it to charge nearly 30 percent below competitive prices. The result, one common to state-subsidized industries everywhere, is that demand for DeCA goods is artificially high.

Military personnel cling to their commissary access even in places where base closings have left few military personnel. While these stores couldn't survive in a competitive marketplace, tax subsidies keep them alive and well.

And the military's subsidized ventures are hardly confined to the food industry. By way of its so-called military exchange systems, the Department of Defense runs hundreds of retail and service outlets, everything from department stores to pet-grooming shops.

Moreover, with the benefit of special tax exemptions on top of their generous subsidies, the exchange stores are similarly able to hold down prices. For that matter, the only real difference between DeCA and the exchanges is that revenues of the latter get spent at the military's discretion. Americans are sure to feel more secure knowing that recent revenues bought a hotel at Disney World for military "moral welfare recreation" programs, and financed a third golf course for Andrews Air Force Base in Maryland.

Much the same wastefulness plagues military housing. The official Department of Defense policy is to provide affordable housing for military families where the private market fails to do so. Fair enough.

The problem is that at an average annual cost of $12,000, each on-base unit costs $4,000 more than would a voucher for a comparable off-base unit.

Yet because the one-third of military families living on base pay no more for that privilege, taxpayers foot the bill. What's more, the fact that military families don't bear the costs of more expensive on-base units leads them to over-consume. It's no different than if there were a subsidy to make Cadillacs as affordable as Hyundais. Like the millions of eager new Cadillac drivers, who wouldn't opt for a more valuable house given that it costs the same? Ideally, we'd subject the military to the reforms we prescribe for state-run economies everywhere.

But given the political difficulty of outright privatization, a more moderate approach may be in order. Under this scenario, the Defense Department could keep all the stores it cared to, and continue to provide on-base housing. The only catch is no more subsidies. Military enterprises would be forced to compete on an equal plane with their private competitors. In terms of food and other retail goods, this inevitably means higher prices.

But that's precisely the point. With DeCA's prices not appreciably different from any local market's, it will improve its notoriously poor selection or drive military families to private competitors.

Further, if the problem is that military personnel can't afford the prices the rest of us pay, it's an issue better dealt with by raising salaries than by propping up comatose stores.

Housing is just as easy. The military already distributes vouchers for private housing. It would simply extend them to those currently living on base, and then price on-base housing at cost. Those families that valued living on base - or in any more expensive house for that matter - could do so by supplementing their voucher.

According to CBO, the annual savings from these reforms would run in the billions. But the greater value comes in changing the military's culture of wastefulness. Until that happens, it will remain as hopeless a cold war relic as the enemies it helped defeat.

* Noam Scheiber is adjunct policy analyst at the Government Accountability Project in Washington.