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p The growth of US military spending throughout the 20th century has been determined above all by the system of priorities applied by the Administration in its activity, and the generally aggressive line of its foreign policy. Characteristically, programmatic statements made by the US Government in the first postwar years most often link Washington’s role in settling disputed international questions with its increasing military might and the application of the policy “from position of strength”. The military preparations of the US Government in recent decades have served as an important activator of a cumulative process in which every step toward more military spending is not only a consequence but also the cause of the further intensification of international tension.

p In present-day conditions war and preparations for war make new demands on the national economy. The greater scale and intensity of the armed struggle dictate not only an increase in the numerical strength of the armed forces but also their equipment with increasingly more sophisticated weapons. The rapid development of research in the armaments industry enhances the dependence of a country’s war potential riot only on the quantity of weapons but also on their quality.

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p The process of ever faster obsolescence of weapons is playing a particularly important role. Some studies and calculations show that no other sector of production is subjected to such frequent renewal and improvement as the manufacture of modern weapons.

p The periods for the large-scale re-equipment of the armed forces are also being reduced. Thus, a special study made in the USA in 1955, revealed that the cycle for the complete re-equipment of armaments is on the average 14 years. A similar study made in 1959 disclosed a reduction of up to 10 years in the average life span of weapons.  [60•1  In view of this, the cost of armaments, annually written off by the military establishment as obsolete, is swiftly mounting. In present-day conditions various weapons and strategic materials are annually written off to the tune of $8,000-10,000 million annually. The prices of “surplus” stocks sold by the US Department of Defence, as a rule, amount only to 1-2 per cent of the price the Government originally paid for these materials.  [60•2 

p An increase in prices is one of the major factors making for the absolute growth in the scale of the budget. But, if prices of goods and services paid for by the government rise at the same rate as the general price level, all other conditions being equal, this cannot bring about a growth in the relative share of government spending.

p Of interest in this respect, therefore, is a comparison of the dynamics of prices of purchased armaments with the general price index. In a period of 40 years after 1929 the deflator of prices of elements of the gross national product increased by 153 per cent, while the index of prices of goods and services bought by the federal government rose by 273 per cent. But, of the mass of goods and services paid for by the government, we are interested above all in the prices of armaments. For the period of the Second World War we can use data of S. Kuznets which relate directly to prices of war output. The index of prices for these goods rose by 62 per cent, while the general index of prices of all durable 61 goods rose by 36 per cent.  [61•1  After the conclusion of the war in Korea, between 1953 and 1969, prices of consumer durable goods in the United States rose on the average 12 per cent, of durable goods purchased by entrepreneurs, 38 per cent, and durable goods bought by the government, 43 per cent.  [61•2  At the same time the general level of prices of armaments in the United States is now considerably higher than that in Western Europe.

p The particularly swift growth of armament costs is explained by a number of factors. First of all, armaments which are products of prolonged research and development, are characterised by ever greater sophistication and require increasing inputs of skilled labour. For example, to develop the B-17 military plane, used in the Second World War, 200,000 engineer man-hours were needed; to develop the B-52 bomber, 4.1 million hours were already required and the B-58, 9.3 million hours. As for the XB-70 (work on this bomber was completed in the mid-1960s), the input reached about 15 million hours.  [61•3  The amount of labour of engineers and technicians required for the development of missiles on the average is twice as high as that needed for the development of aircraft.  [61•4 

p The intricate nature of the scientific and technological problems which have to be solved in creating new types of weapons determines the long periods of their development. To this often are also added long debates in Congress concerning appropriations, the bureaucratic procedure in the military establishment, and so on. At the beginning of the 1960s, the period between the conclusion of a contract for the study of the possibilities of producing new aircraft and their regular manufacture, was about 11 years.  [61•5 

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p At the same time the swift advance of science entails the rapid obsolescence of the developed weapon systems. As a result more and more models of weapons already become obsolete at the stage of research and development. According to spokesmen of the US Air Force, of each three elaborated projects ot new weapons, two are obsolete before their production is launched.  [62•1  Consequently, ever greater resources are spent for the development of weapons which turn obsolete even before they become operational.

p Government contractors widely exploit these features of the manufacture of modern weapons for additionally raising the prices of goods sold to the government. The increase of prices is also facilitated by the fact that the military establishment, seeking to achieve better tactical and technical properties of new weapons, is little concerned with additional expenses. This further weakens the economic “brakes” which restrain the essentially endless process of development of new weapons. One scientific consultant of the US Air Force wrote that “too much effort is being spent in getting a one per cent greater improvement at a 20 per cent increase in cost".  [62•2 

p In addition to these technico-economic factors, it is necessary to consider the structural characteristics of the arms market. The point is that the share of governmental enterprise in the production of weapons in the United States is very small: during the 1950s only 2 per cent of the primary military contracts issued by the US Government were filled at state-owned enterprises.  [62•3  This inevitably gives rise to the problem of enlisting private businessmen in sectors servicing the war industry.

p In view of intensive scientific and technological progress as well as a number of political factors, the government’s demand for specific types of weapons is marked by growing instability. In conditions of increasing uncertainty and risk, 63 large corporations undertake the development of a new weapon and its manufacture only when the prices seem sufficiently profitable to them. Moreover, in view of the swift change of weapon models, private firms refuse to make big investments in the most specialised parts of the productive machine of the war industry, in highly capitalised factories of its new branches, and so on. Large corporations in respective industries usually possess sufficient resources for buying all the necessary equipment.  [63•1 

p But they prefer to shift to the government (that is, ultimately on the taxpayers) most of the increasing commercial risk. Specialised re-tooling at the expense of the government is now becoming one of the main conditions for the migration of capital into the war industries.

p While during the First World War approximately onetenth of the expense for building industrial enterprises was financed by the state, during the Second World War already about two-thirds of the total sum of investments in manufacturing industry were made with the government’s money.  [63•2  During the post-war years the US Department of Defence financed the building of a number of new specialised productive units. The government’s property leased to private contractors working for the US Department of Defence was valued at about $15,000 million in the mid-1960s.

p The role which productive units, leased from the federal government, play for some private companies can be judged by the following data. A group of contractors, 12 aerospace companies, utilise government plants worth $895 million, possessing their own facilities with an original cost of $395 million.  [63•3 

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p The very terms of military contracts promote concentration in war production. Thus, in the atomic industry, only 1-3 contractors had a production potential for performing the required technical tasks.  [64•1 

p In shipbuilding only three or four private firms could, from the viewpoint of the military establishment, undertake to develop nuclear-powered submarines. In the production of missiles the main stages of manufacture are monopolised by two to four of the biggest companies.  [64•2 

p This procedure can also be observed in the market for the sale to the government of some goods which are not of an exclusively military purpose, for example, strategic raw materials. Thus, one company supplied nickel and two companies provided 85 per cent of all the lead to the federal government.  [64•3 

p A total of 50 biggest private concerns received from the government about 58 per cent of all the military contracts during the Second World War (1940-1944); over 56 per cent during the war in Korea (1950-1953) and 63-65 per cent in the first half of the 1960s.  [64•4 

p The specific structure of the arms market imparts a definite imprint on the forms of contracts concluded by the big corporations with the government. The 1947 Act gave the military establishment broad powers as regards the choice of the form of agreement with contractors.  [64•5 

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p The spread of new forms of contracts, associated with large-scale research and development work, essentially restricted the traditional process of contract-bidding through free competitive bids. At present military products are overwhelmingly purchased by the government without any competitive bidding, by way of direct negotiation with the largest corporations. Thus, in the 1968 fiscal year as a result of negotiations with only one firm, military contracts were awarded totalling 57.9 per cent of the value of all contracts; moreover, 30.6 per cent were placed through negotiations in which several firms could participate and only contracts comprising 11.5 per cent of the total value were awarded on the basis of free competitive bids.  [65•1 

p Among the barriers preventing the entry of new companies into weapons production are a number of governmental provisions for the conclusion of contracts along “package deal" lines, the limited circle of companies given permission to do classified work and the role of preliminary contracts for the development of new types of weapons.  [65•2 

p Professor Lanzillotti, a well-known expert on industrial organisation, points out that there is a “defense contract policy which leans heavily on oligopolistic firms”,  [65•3  and B. Cochran notes that in the sphere of weapons production monopoly relations are more fully realised than in the civilian economy.  [65•4 

p The scale of overpayments linked with the restriction of competition and the spread of the oligopolistic practice in 66 price formation is demonstrated by the following fact: surveys have shown that free competitive bids enabled the government to buy weapons 32-46 per cent cheaper than in the case of direct negotiations with only one company.

p Thus, in weapons production highly contradictory processes are revealed. The specific features of the manufacture and sale of modern arms facilitate the development of the distinctly pronounced oligopolistic tendencies. On the other hand, intensive research and development in this sphere and the exceedingly dynamic process of renewal of weapons gives rise to the possibility of competition by a considerable number of big industrial corporations, including companies which formerly did not engage in the manufacture of the given type of arms.

p Oligopolistic tendencies in the development of the production and sale of armaments inevitably give rise to an increase in prices (as compared with the level of competitive prices) and predetermine considerable overpayments on military contracts. Instances of this kind have been repeatedly reported in the American press.  [66•1  Similar examples may be found in almost every report of the General Accounting Office.

p Until recently prices for new articles of a specifically military nature have been most frequently established on the basis of production costs (“costs-plus fixed fee”, “ costsplus incentive fee”, and so on). Moreover the big corporations can more fully utilise in war production than in civilian, all the priviliges in writing off depreciation, exorbitant salaries which are allowed by law to be included in the cost of production and so on.  [66•2  As was pointetd out in one of the 67 Congressional committees, military departments rarely attempt to restrict this tendency to conceal part of the profit through higher salaries paid to top executives.  [67•1 

p In the first half of the 1960s the US Government tried to somewhat restrict the size of such overpayments by opening the door to free competitive bidding and widely introducing contracts based on a “fixed price-plus incentive”. But the reorganisation of the government’s system of contracts could not radically alter the existing situation. Let us merely mention here some of the obstacles this reform encountered. In the first place, the sphere of free competitive bidding is restricted by the very process of research and development of new types of weapons and the uncertain character of this process, the need to utilise complex technologies, specialised costly manufacturing equipment. To this must be added the oligopolistic position occupied by a number of large corporations which refuse to supply the government with the necessary materials at prices which they consider insufficiently profitable. Second, in a private enterprise economy the maximisation of profit inevitably remains the chief stimulus for fulfilling military contracts. Thus, in most cases the state does not attempt to seriously curtail the profits of most of the big war industrial companies. Robert McNamara, former Secretary of Defence, stated: “I want to emphasize, that our objective here is not to cut the profits of Defense contractors. I am not at all concerned with cutting the profits of the average Defense contractors."  [67•2 

p At the same time the following point should be emphasised. Even in those cases when free competitive bidding is formally practised, prices offered by participating corporations actually reflect the oligopolistic processes of price formation. The US press has repeatedly cited instances when a number of different companies participating in bids offered absolutely identical prices (coinciding to a cent),  [67•3  and the 68 Defence Department was compelled to accept this price. In this respect let us quote a characteristic excerpt from a dialogue between Senator Proxmire and an executive of the Defence Department Captain T. M. Malloy at a hearing of one of the subcommittees of the Joint Economic Committee of Congress: “Senator Proxmire: Do you have any method to determining whether the so-called, what might be called the General Electric-Westinghouse pattern, in other words, the dividing up of the market where firms come in and seem to rotate in their procurement bids for armament materials? Is there any method that the Defense Department has of coping with this kind of situation or being alert to it, being aware of it? Captain Malloy: Senator, this is, of course, one of the most difficult things to detect."  [68•1 

p The budget expenditure, which assumes the form of overpayment on military contracts, is transformed into profits for the big war-industry corporations. As pointed out earlier, a considerable part of the profits of these companies is listed among other items of the Balance sheet, by putting these sums into the various items of production costs. But even the figures officially listing these profits speak for themselves. The ratio of net profit to the invested capital of fifteen of the biggest military contractors in 1960 was 21 per cent higher than the average for 500 of the largest industrial corporations; in 1961 the figure was 31 per cent higher.  [68•2  Professor Murray L. Weidenbaum showed that in 1962-1965 six big corporations engaged in filling military contracts had a return on net worth (net profits as a per cent of stockholders’ investment) of 17.5 per cent, while six companies of approximately the same size which had no big military contracts received a return of only 10.6 per cent. He rightly 69 concludes that military business is much more profitable than ordinary commercial business.  [69•1 

p Lastly, we can refer to a survey of the biggest military contractors of the state (the 12 surveyed corporations received more than half of all the contracts in the aircraft industry, rocketry and space vehicles): the rate of profit in the manufacture of the latest weapons was 29 per cent, while profit on the output of civilian group only 17.4 per cent.  [69•2 

p The large sums officially listed, and the hidden profits combined with the steadily mounting demand for armaments by the government, make it possible to assure a comparatively higher rate of accumulation for companies which have large military contracts. A study made by the Stanford Institute compares a change of balance-sheet data of 400 big companies between 1948-1950 and 1956-1958. The results of the analysis show that 100 companies with the highest rates of capital accumulation and expansion of production had a share of military contracts amounting up to one-third of their turnover, while 100 companies with the lowest growth rates had contracts of only 2.5 per cent. These facts give a good idea of the reasons for the frenzied activity of some war-industrial companies during the Congressional procedure of authorisation of appropriations for military purposes.

p At the same time the increased arms race leads to a growth in the economic and political influence exerted by the brass hats. In these conditions “the tasks which military leaders perform tend to widen. Their technological knowledge, their direct and indirect power and their heightened prestige result in their entrance, of necessity, into arenas that in the recent past have been reserved for civilian and professional politicians".  [69•3  The growth of militarism involves ever closer contact and interlocking relations between the most powerful representatives of the war industry and the 70 top group in the military and political machine. As a result, a real danger arises of increasing the economic and political might of the military-industrial complex.

p Military preparations divert resources and energies that could serve purposes of construction and the progress of all mankind into channels for production of weapons of destruction. In the 1967 fiscal year the production of armaments absorbed 59 per cent of all the labour inputs in the aircraft industry; 33 per cent in the radio, television and communication equipment; 26 per cent in electronic components and accessories; 23 per cent in other transportation equipment; 11 per cent in metal-working machinery and equipment; 11 per cent in electrical equipment and apparatus and 10 per cent in nonferrous metal ores.  [70•1 

p The steep growth of military spending may impart an unbalanced character to country’s economic growth. It will be shown in other chapters that the rapid increase in the military expenditures inevitably increased the tax burden, the government debt and stimulated inflation, that is, it ultimately brought serious hardships to the overwhelming majority of the American people.

p At the same time the huge military spending of the United States has accelerated the increase of the balance-of- payments deficit and weakened the position of the dollar in the world. In this sphere the adverse effect of the large military expenditures abroad stands out particularly.

p The growth of military spending by its very nature involves a waste of national wealth. That is why at some stage of the arms race the huge military expenditures inevitably begin to retard the growth of the country’s economic potential. Japan, the Federal Republic of Germany and Italy have registered the highest economic growth rates and for a longer period among Western countries throughout the post-war period. It goes without saying that there are many complex factors explaining their advance but it is indicative that in these countries the arms race until now has been conducted on a comparatively smaller scale.

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p The only alternative to the arms race is general and complete disarmament. Today mankind has no more pressing task than to curb the policy of escalating militarism and international tension; this task can be accomplished only by energetic and consistent struggle for disarmament and the peaceful settlement of outstanding international issues, only by struggle against the forces of militarism and aggression.

p This steadfast and hard struggle is yielding ever more tangible results with each passing year, helping to normalise the entire international climate. Significant changes have taken place in the world scene in recent years. Suffice it to refer to the end of the war in Vietnam, the wide international recognition of the German Democratic Republic, the conclusion of a number of important political and economic agreements between socialist countries and the Federal Republic of Germany, the preparation of the European conference on security and co-operation, cessation of the armed conflict in the Indochina Peninsula and the emergent steps towards normalising relations between India and Pakistan. All these and many other events attest to a substantial improvement of the international political climate in the world.

p A big part in implementing a peace-loving policy has been played by constructive meetings and negotiations between leaders of the socialist and capitalist countries and particularly the Moscow (1972) and Washington (1973) talks of General Secretary of the CPSU Central Committee Leonid Brezhnev and US President Richard Nixon. Among the major results of these negotiations are the conclusion of the Treaty on the Limitation of Anti-Ballistic Missile Systems and the Interim Agreement on Certain Measures with Respect to the Limitation of Strategic Offensive Arms and the elaboration of the Basic Principles of Negotiations on the Further Limitation of Strategic Offensive Arms. Of truly historic importance is the Agreement on the Prevention of Nuclear War signed in the summer of 1973. For the first time in history the two strongest powers in the world reached understanding, according to which both parties assumed the commitment to prevent situations capable of causing a dangerous aggravation of relations and to avoid military confrontations and the outbreak of a nuclear war.

All these changes in political, economic and cultural 72 relations between states create new conditions for revising, from realistic positions, priorities in budget appropriations of the federal government.