Defense Conversion of U. S. Defense Industry and Arms Export Market after the Cold War

This paper examines impacts of current defense conversion efforts in the U. S. on world arms export market. Since U. S. share in the world arms export market has been increasing after the collapse of the Soviet Union, it is essential to understand how U. S. defense industry is reacting to the new environment in order to predict a future trend of the arms export market.<br>In the first section, motives of the U. S. government behind arms transfer are examined and it is found out that economic rather than political factors are gaining importance especially after 1980s. Then survival strategies of U. S. defense companies, they are 1) conversion, 2) shrinking in size and 3) exporting arms, are presented to provide a framework for the analysis of this paper.<br>In the second section, the defense conversion in the post-Cold War environment is analyzed by comparing it with the situation after the World War II. It is found that defense conversion in traditional sense, that is developing business into a commercial sector, is unlikely to be materialized because of 1) difficulty of defense companies in producing competitive commercial products due to the peculiar regulatory environment and corporate practices that were developed during the Cold War period, 2) non-existence of pent-up demand, that contributed to the successful defense conversion after the World War II and 3) Worsening financial conditions of defense companies and their negative attitudes toward the conversion.<br>In the third section, it is discussed that contraction of defense industry is a necessary first step toward reducing export pressure of arms. However, even after the industry contraction, the export pressure is likely to continue because cost of developing and manufacturing arms has been steadily increasing. Unless this trend is corrected, defense companies would continue to be pressed to export arms in order to reduce unit cost of their products. Then concept of commercial and military integration is explained as a means to reduce the export pressure. The commercial and military intergration in research and development, manufacturing process and part supply has potential to ameliorate inefficiency of the defense sector. Here, the aspect of the intgegration in reducing the export pressure is discussed in detail.<br>In the last section, it is concluded that both the defense industry contraction and commercial and military integration are necessary steps toward reducing economic pressure for arms exports. The Clinton administration's initiative on defense sector reform is evaluated as a right move toward this new direction. However, there is a danger that until the new system is established, the export pressure of arms would increase due to the severe competition among world defense companies leading to proliferation of arms and military technologies in the developing countries.