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p Military goods which are identical with or differ but little from analogous civilian goods (food and kindred products, fuel and lubricants, textiles, etc.) are purchased by the government from suppliers according to approved military specifications on the free civil market. Therefore it is unnecessary to discuss the organisation of their production.

p The question discussed here is one of organising the manufacture of such specific goods that are produced and used exclusively for military purposes. In relation to these goods, the government not only acts as their sole procurer but it also interferes in the sphere of their production, adapting it to its needs, exerting decisive influence on its scale and structure.

p In the pre-monopoly period, armaments were produced mostly by government arsenals. In the First World War, it became clear, however, that the arsenals were unable to meet the increased demand for military hardware. Already at that time, the overwhelming proportion of armaments was manufactured by private Factories. This led to the loss by government arsenals of their former importance, although they continued to play a fairly great role in the development of military technology. For example, in the period between the two world wars, government arsenals and laboratories worked intensively to improve existing and develop new models of armaments to be handed over to private corporations for line-production. On the eve of the Second World War, the 183 US arsenals manufactured almost all weapons for the Army and the bulk of armaments and ships for the Navy. The share of arsenals in arms manufacture dropped to an all-time low in the Second World War and has remained at a low level ever since. At the same time, over the past two decades their importance in total war production decreased both absolutely and relatively.

Scant information is available on government munitions factories in the USA. According to some data, in 1963 the Department of Defence had 190 industrial enterprises with total assets worth 7,440.3 million dollars. Some of them are operated by the Department of Defence, others are leased to private firms. These enterprises manufactured the following types of military products:

Product Number of enterprises Investment (mil. dollars) Aircraft and engines ...... 29 881.6 Ammunition and explosives . . 50 2 465.3 Armour heavy weapons, ordnance and small arms ............. 18 694.5 Missiles ............... 19 647.2 Shipbuilding and repair ........ 21 1,622.0 Electronic equipment ......... 10 79.4 Other ................ 43 1,050.3 Total ................. 190 7,440.3

p Source: William L. Baldwin, The Structure of the Defense Market 1955-1964, p. 107.

p At present, the number of government arms factories has slightly reduced as the Department of Defence has sold many of them in the past few years.

p In the field of military production, the government is considerably involved in the manufacture of ammunition and high explosives, shipbuilding and ship repairs and the production of ordnance and small arms.

p Information on the scale of production at government enterprises is usually withheld- A certain exception to the 184 rule is the government shipyards which, according to the 1958 industrial census, handled 672 million dollars’ worth of new constructiqn and repair work. These shipyards handle a sizable proportion of shipbuilding and repair operations for the US Navy. The arsenals greatly contribute also to the supply of the armed forces with ordnance, small arms and ammunition. Almost the whole of aircraft, missile, space, radioelectronic and other major types of modern military equipment is manufactured by private corporations.

p In organising the production of military goods, the US Administration gives preference to private manufacturers. This is essentially an unwritten law and, indeed, statutory references seem to contradict it, for the Secretary of the Army is directed "to have supplies needed for the Department of the Army made in factories or arsenals owned by the United States, so far as those factories or arsenals can make those supplies on an economical basis".  [184•1 

p The following data may be adduced to illustrate the place of private firms in arms production. Over the ten years since July 1, 1950 to June 30, 1960, 90 per cent of the total worth of the Administration’s prime military contracts was placed with private American firms, 6 per cent with foreign and American firms operating outside the United States, 2 per cent with colleges and "non-profit corporations" and 2 per cent with government military enterprises.  [184•2  It should be noted that the role of the arsenals is underrated here because these indices cover only that part of the productive activities of government arms factories which are carried out by the armed services for one another, while operations they perform to meet their own needs are left out of account.

p Private corporations take over functions connected not only with arms manufacture but also with organising military construction, research and development. Research institutions of the Department of Defence handle a relatively small share of military research and development. At present they account for slightly over a quarter of the Pentagon’s total 185 expenditures on military research and development. Research institutions of the Department of Defence are involved mostly in "fundamental research" and "exploratory development”. This work is carried out in laboratories, research centres and arsenals under the departments of the Army, Navy and Air Force, respectively.

p The bulk of military research and development is conducted by private industrial firms under government contracts financed out of the federal budget. Industrial firms undertake almost every kind of military research and development, concentrating on "engineering development" and " development of operational systems”. Aircraft and missile construction, electrical engineering, radioelectronics and the chemical industry account for the bulk of industrial research and development.

p A rough idea of industry shares of military research and development is given by the indices of Table 33 which are concerned with all spending on science, both military and civilian. In view of the high-degree concentration of military research and development in the above branches of the manufacturing industry, it may be stated that their proportion in overall military research and development is much larger than indicated in the table.

p Military research is also carried out at universities and colleges. Under contracts with the Department of Defence and other agencies, they conduct varied fundamental research and work on problems of military-economic and military-political importance.

In the book Pentagon Capitalism. The Political Economy of War, the American Professor Seymour Melman gives the following data: in 1968, the Massachusetts Institute of Technology filled 119 million dollars’ worth of Pentagon orders, John Hopkins University, 57 million, the University of California, 17 million, Columbia University, 9 million, Stanford University, 6 million. The broad employment of scientists from universities for fulfilling military contracts of the Department of Defence has an adverse effect on the educational system in the USA, lending an increasingly militaristic character to university research. Many students, teachers and scientists in the United States are opposed to the militarisation of American science.

186 Table 33 Industry Shares of R&D Spending 1956-58 1961-63 1963-65 1973-75* Aerospace ........ 34 1 36 5 38 0 42 0 Electrical equipment, radioelectronics ...... 23 4 21 4 19 0 14 1 Communications, electronics . . 10 0 10 9 11 0 11 0 Other electrical .... Chemicals, allied products Industrial chemicals . . Drugs, medicines . . . Other chemicals . . . Motor vehicles, other transportation ........ 13.4 9.4 6.7 1.4 1.3 9 9 10.5 10.1 6.4 1.7 2.0 8 7 8.0 10.3 6.4 1.5 2.4 8 3 3.1 11.5 6.0 1.5 4.0 6.5 Machinery ...... 8 8 7 9 7.6 6.3 Scientific, professional equipment ......... 3.2 3 8 4.1 5.2 Scientific, measuring instruments ...... 1.8 1 8 1 8 1.8 Optical, surgical, other instruments ..... 1 4 2 0 2 3 3.4 Petroleum refining, extraction .......... 2.9 2 6 2 5 2.2 Rubber .......... 1.2 1 2 1.2 1.2 Food, kindred products . . Primary metals ...... 1.0 1 5 1.1 1 5 1.1 1.8 1.4 2.3 Ferrous metals .... Non-ferrous metals . . Stone, clay, glass products Paper, allied products . . . Textiles, apparel ..... 0.9 0.6 0.9 0.5 0.25 0.9 0.6 1.0 0.5 0 3 0.9 0.9 1.0 0.6 0.2 1.0 1.3 1.2 0.7 0.3 Lumber, wood, furniture Other industries ..... 0.15 2 8 0.1 3 2 0.1 4.2 0.1 5.0

p * Estimate. Source: Chemical Week, August 14, 1965, p. 62.

p After the Second World War, the US Administration has been widely using "non-profit corporations" to solve military, military-political and military-economic problems. The "non-profit corporations”, otherwise known as "think factories" or "brain centres" of the Pentagon, incorporate definite 187 features of universities, government agencies, industrial firms and private foundations, while differing from them on the whole. These corporations are considered independent organisations supported with sums they derive under contracts, as well as with subsidies from various private foundations.

p The establishment and broad use of "non-profit corporations" by the Administration is traced to the following main causes: first, the growing importance of science in settling political, military and military-economic problems; second, the difficulty of getting leading scientists to work at government institutions where the pay is relatively low and their habitual conditions of work and freedom of research are lacking; third, efforts to supply government officials in top decision-making positions with objective analysis data uninfluenced by red-tape and departmental parochialism. " Nonprofit corporations" more effectively meet these requirements. They pay much larger salaries to their employees than government institutions, provide better conditions for research.

p The entire variety of "non-profit corporations" may be divided into three categories:

p 1. Research institutions and laboratories under universities which usually conduct applied research and experimental work for the military departments. They include, in particular, the Jet Propulsion Laboratory at the California Institute of Technology and the Lincoln Laboratory of the Massachusetts Institute of Technology.

p 2. Technological corporations which assist government agencies in organising the management of large technological programmes fulfilled by industry. Such are Aerospace and MITRE to cite but two examples.

p 3. Advisory corporations which carry on research into military-political, military-economic, technological and other problems. The most important of them are RAND, the Hudson Institute, the Institute for Defence Analyses, etc.

p The best known of these is RAND which was set up in 1946 as an independent subsidiary of Douglas Aircraft corporation, and in 1948 became a "non-profit corporation”. Research for the Air Force holds pride of place in the activities of this corporation in addition to general research for the Department of Defence. RAND employs about 1,000 188 staff workers, has several research departments for economics, sociology, etc. The works of this corporation, mostly classified, have substantial influence on shaping military strategy and methods of directing US military-economic activity. In this connection RAND research in the field of systems analysis and introduction of the "planning- programming-budgeting" system deserves special attention.

p Non-government institutions have a leading role to play in research and development sponsored by NASA and other government agencies. NASA employs numerous industrial firms and other organisations for work on its programmes. In 1965-66 the total value of NASA contracts for the development and production of varied space hardware reached 5,032 million dollars, about 81 per cent of this sum going to private firms, 5 per cent to the Jet Propulsion Laboratory at the California Institute of Technology, 4 per cent to higher educational institutions and "non-profit corporations”, and 10 per cent to other government agencies.

p In this way, the US Administration finances two-thirds of all research and development carried out throughout the country, while government agencies handle less than 15 per cent of this work. Over 85 per cent of research and development is conducted by private industrial firms, colleges, universities and "non-profit corporations" (see Table 34). The table shows that the main research and development bodies are private industrial companies whose share in the use of common funds amounts to about three-fourths, whereas their share in financing is equal approximately to onethird.

p Among the highly developed capitalist states, the USA stands out not only for the huge scope of its military production but also for its being in effect the only country where private companies supply the overwhelming proportion of military goods and services to the government. Having transferred the functions of producing military goods to private corporations, the Administration at the same time renders them great assistance in organising and regulating the development of military production.

p This assistance primarily takes the form of highly profitable military contracts. It is precisely by specifying the volume, structure and geographical distribution of these
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189 Funds for Performance of Research and Development (mil. dollars, per cent) Table 34 o o z C/J R&D performer 1953 1955 1957 I960 1963 1964 1965 1967 1970 1971 Federal Government . . . 1,010 19.6 900 14.4 1,220 12.3 1,730 12.6 2,280 13.1 2,840 14.8 3,093 15.1 3,395 14.3 3,600 13.4 3,650 13.1 Industry . . . 3,630 70.4 4,640 74.0 7,730 78.1 10,510 76.7 12,630 72.8 13,510 70.4 14,185 69.4 16,420 69.4 18,910 70.4 19,800 71.1 Universities, colleges, etc. 420 8.1 590 9.4 770 7.8 1,190 8.7 1,890 10.9 2,220 11.6 2,451 12.0 3,002 12.7 3,400 12.7 3,460 12.4 Other non- profit institutions 100 1.9 140 2.2 180 1.8 280 2.0 550 3.2 610 3.2 720 3.5 863 3.6 940 3.5 940 3.4 Total .... 5,160 100 6,270 100 9,900 100 13,710 100 17,350 100 19,180 100 20,449 100 23,680 100 26,850 100 27,850 100 > o O O o

Sources: Statistical Abstract of the United States, 1967, p. 537; 1970, p. 519; 1971, p. 509.

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contracts that the government, that sole military customer, regulates the development of military production.

p The striving of the monopolies to get hold of a share of huge military contracts contributes to the investment of private capital in specialised arms industries. It should be noted, however, that private businessmen use all ways and means to make the state budget bear the brunt of financing capital construction.

p In wartime, huge government demand for weaponry dictates the need for expanding arms production. In the First World War, the USA secured this expansion mostly through private capital investments and in the Second World War, through government investments. For example, the government share in the total expenditures on construction in the period 1915-18 was about 30 per cent, whereas from 1940 to 1945 it increased approximately to 60 per cent.  [190•1  Such an increase in the share of government spending was mostly due to the fact that the monopolies, aware of the experience of the First World War, refused to invest capital in the arms industry, because demand for its products sharply fell once a war was over. Therefore, the US Administration, faced as it was with the need to expand arms production, was compelled to finance the construction of a large number of government enterprises, many of which were sold at token prices to private corporations after the end of the war. Government enterprises were particularly numerous in the aircraft, shipbuilding, steel, synthetic rubber, and other industries. Moreover, the Administration, using the so-called system of accelerated rate of depreciation, provided very privileged terms for private capital investment in arms factories. The system of accelerated rate of depreciation was first employed in the United States during the First World War. However, it became widespread during the Second World War and the US war of aggression in Korea. The USA is still using this system to stimulate military production.

p Technically, the system of accelerated rate of depreciation grants nothing but tax concessions to the monopolies. The 191 capitalist is entitled to write off the cost of a newly built enterprise within a shorter period (five years) than its average lifetime. In this way, industrialists, by overstating production costs, considerably understate income subject to taxation, thereby boosting monopoly profits. But the advantages they gain from the system of accelerated rate of depreciation are not limited to tax privileges. As a matter of fact, the overstated depreciation charges are included by military contractors into the prices of supplies to the government, i.e., this system stimulates the inflation of prices of military goods, which also increases the profits of monopolies at the expense of the state budget. Thus, the system of accelerated rate of depreciation is in effect a surreptitious form of government subsidising of private industries. In the USA, private capital investments entitled to accelerated rate of depreciation amounted to 650 million dollars in the First World War, 5,700 million in the Second World War, and 21,500 million during the war of aggression in Korea.  [191•1 

p An important form of government stimulation of arms production is the lease of government production facilities to private manufacturers, provision of them with equipment in short supply, raw materials and manpower. This form of assistance is practised on a particularly wide scale in wartime. According to Department of Defence estimates, at the end of 1967, the total value of government property ( industrial plant, real estate, special testing equipment, etc.) leased to Pentagon contractors was about 15,000 million dollars. This property is used by approximately 5,500 firms.  [191•2 

p In 1956-57, the General Accounting Office held an inquiry into the use of government property by lease-holders of the Department of Defence and revealed crying abuses. It was found, for example, that 21 firms (FMC, Holley Carburetor, Raytheon, Boeing, etc.), and two universities (in Chicago and the State of Maryland) misused about 1,000 million dollars’ worth of government property at their disposal. These firms illegally used government equipment 192 for manufacturing market goods, did not pay rent in full, etc. Senator William Proxmire, Chairman of the Subcommittee on Economy in Government of the Joint Economic Committee, stated that military contractors were wasting "hundreds of millions of dollars a year" through improper use of Defence Department property.  [192•1 

p The government grants direct subsidies to private arms manufacturers, for example, shipbuilding companies. Advancing money to Defence Department contractors has become a widespread practice. According to the Pentagon’s official statistics, the total sum of advance payments to 1,174 industrial firms under uncompleted military contracts had reached almost 6,200 million dollars by June 1967, the Navy accounting for 3,400 million, the Air Force, for 2,100 million, the Army, for 700 million. The twelve biggest firms handling 100 million or more dollars’ worth of military contracts each, received over 61 per cent of the total advance payments, whereas the share of 63 firms with 10 million dollars’ worth of contracts each, was 89 per cent. The biggest recipients were General Dynamics (871 million), Lockheed Aircraft (765 million), United Aircraft (328 million), New York Shipbuilding (314 million), and Boeing (172 million).  [192•2 

p According to legislation, advance payments should not exceed 75 per cent of current inputs under contracts with small firms, and 70 per cent, with big firms. Not infrequently, however, advance payments to big companies cover 90-95 per cent of their current inputs.

p Arms-manufacturing firms use all of the above-mentioned levers to finance the bulk of their capital construction out of the state treasury. As it follows from a report of the House Subcommittee on Armed Services, 72 per cent of the fixed capital of the airplane companies was supplied by the government.  [192•3 

p Private firms have built up, mostly from government funds, huge productive capacities capable, in an emergency, 193 of substantially expanding military production. The government, which gives private firms financial assistance and is their single customer, regulates and plans military production. With this end in view the US Administration implements a series of monopoly measures. Special government institutions have been set up for programming military industrial development and for effecting measures preparatory to mobilisation. Detailed plans of economic mobilisation, etc., have been drawn up in advance.

The US ruling quarters are trying to adapt thoroughly the country’s huge economic potential to military needs.