IRDISP-RESEARCH INSTITUTE FOR DISARMAMENT, DEVELOPMENT AND PEACE

ABSTRACT: Fine that there is the arms race, but what has Italy to do with it? Aren't the U.S. and the Soviet Union the promoters of such race? It is true that the two superpowers are the chief responsibles for the arms race. The chief ones but not the only ones. Italy has its share of responsibility as well. A smaller share, but not a negligible one. In absolute numbers, Italy's military spending in 1985 was the eighth of the world. As regards the number of men at arms, it is among the first fifteen countries. And the Italians are in the first six positions among the world exporters of armaments. The weight of the military sector on the whole of the Italian economy is still rather limited: The spending accounts for 2.7% of the gross domestic product; arms represent 2.7% of the wealth produced by the industry, and 2.3% of the exports. Moreover, the military threats to the security of Italy are less serious than those which many other international actors have to face - including many of our allies. Therefore,

Italy is in a situation that offers many opportunities to contain the spending, experiment conversions to civilian uses of the military productions, and promote a realistic security policy aimed to achieve détente.

Unfortunately, these opportunities are dropped. In fact, there has been a tendency to expansion over the last decade which must be urgently stopped. As of the mid-seventies, Italy has become one of the major exporters of weapons systems, and its military spending exceeds the annual growth rates decided at the NATO level. That same period marks the rise of the supporters of a "new military role" for Italy in the Mediterranean. The "White Paper" presented by the Minister of Defense Spadolini in winter 84-85 summarizes and pinpoints these developments, obviously from the point of view of a person who supports them and hopes that they will continue. This book on the contrary highlights the doubts, the questions, the alternative proposals compared to what has been to this moment a monologue carried out by the establishment.

("ITALY AND THE ARMS RACE" - A counter-White Paper of defense - edited by Marco De Andreis and Paolo Miggiano - Preface by Roberto Cicciomessere - Franco Angeli Libri, 1987, Milan)

8. A BILL FOR THE CONVERSION OF THE MILITARY INDUSTRY

by Francesco Rutelli

1. Reasons for converting the arms industry

A debate has recently been opened on the direct cost of military spending: the monetary resources allocated to the ministry of defense and which the latter has partly handed over to the industries that produce weapons systems.

Economic researches on conversion underscore another type of cost, i.e. the opportunity cost of the civilian goods and services which the community loses when resources are destined to military production. Such principle is generally valid to assess any economic policy intervention, as well as the consequences which this implies in terms of reallocation of the resources.

However, we are interested in it because of the peculiar characteristics of the goods produced. According to the American economist Seymour Melman, "a modern reaction bomber, a supersonic fighter, a submarine or a nuclear missile, all represent extraordinary technical achievements. However, whatever their purpose, they do not in the least contribute to ordinary consumption, and therefore do not affect the standard of living; nor can they be used for further productions. Complex as a nuclear-powered submarine may be, no one can use it for useful purposes" (1). According to another American expert in military economics, Hugh Mosley, the three most common uses of the concept of opportunity cost are: an opportunity cost relative to the national budget (in other words, in terms of political allocation of government resources), one in terms of real economic resources and a so-to-say performance cost (in terms of failed economic development) (2). The third type of use of the concept is clearly the most complex one,

and calls for an assessment of the military expenditure in relation to the general characteristics of a country's economy. The aim would be that of quantifying the impact on growth, competitiveness, employment, inflation and so on.

According to Melman, the fundamental uselessness of the goods produced by the military industry involves a further type of cost for the community: the rise in the marginal productivity of the capital (basically, the increased efficiency in the use of this productive factor) in the military sector is used for objectives that cannot lead to a new production. Thus, it is lost forever. The same applies to the financial and human resources used in military R&D, which lead to a know-how which can be applied only to the same military field. Robert DeGrasse, another American economist, underlines the fact that military R&D subtracts engineers and scientists from the civilian sector. This is particularly problematic in periods such as this, characterized by a want of resources in the field of advanced technologies (3).

As to the question of the technological fallouts on the civilian sector, it is worth quoting the opinion of the Nobel prize for Economics Wassily Leontief: "Despite the fact that a number of researchers contend that the civilian economy receives secondary benefits from military training and infrastructure in less developed countries, and from research and development in industrial countries, and that such benefits outweigh the negative effects of the military burden, it might equally be contended that a well-financed project for space exploration or for the construction or reconstruction of a large-scale rail network - or for the construction of...modern pyramids - could serve the same purpose" (4).

Another aspect which the studies on conversion insist upon is the inefficient management which characterizes the companies that produce for the defense sector. Generally speaking, they do not follow the criterion of cost minimization, which is characteristic of any market economy. On the contrary, they maximize the costs and then compensate them by raising the prices (or subsidies). The managers of the military industries know than once they have been awarded an order from the ministry of defense, the prices could can soar as an effect of the invisible "yeast" of the so-called military inflation. All this leads them to become accustomed to inefficiency, which reflects itself also in the unreliability of military products. In the civilian sector there is a growing tendency to extend products' period of warranty, which points to a growing reliability of the product. The opposite logic seems to prevail instead in the military sector. Melman underlines that for every one hundred F-15s (the pride of the American

aeronautic technology) in service, 45 are undergoing maintenance at the same time. As a result of this scant interest for the reliability of the product, the working force also becomes accustomed to producing in an inefficient manner.

2. Major opportunities for conversion in the Italian situation

The structural conditions of the Italian military industry

- usually described and analysed in a confused manner, owing to the unavailability of reliable data - are such as to make possible a process of conversion for civilian uses.

The bonds to the current situation are strong but not overwhelming: according to the estimates provided in the previous chapter, the military industry accounts for 1,6 per cent of the working force, 2,1 per cent of the production, 2,3 percent of the exports of the national industry. These are significant figures, especially if we relate them to the debate opened in the first six months of 1986 on the pages of the "Bulletin of the Atomic Scientists": a fiery controversy between the organizers and theoreticians of the national and local campaigns for "economic conversion" (Lloyd Dumas and Suzanne Gordon, Kevin Bean) and the director of the Defense Budget Project in Washington, Gordon Adams, who punctiliously (notwithstanding several mistakes and inaccuracies) questioned the results of all conversion attempts carried out in the West after the second world war. The above-mentioned debate highlights an overwhelming unbalance in terms of real force in favour of the interests concentrated on the U.S. military-indus

trial complex compared to the ones deployed by the pacifist organizations, a number of local communities and limited sectors of the public opinion (5).

The Italian military-industrial complex, which is undergoing a major growth in terms of economic power and political awareness, remains nonetheless linked to a recent experience, characterized by the ruthlessness of the export operation to the Middle East, towards areas of unrest and dirty markets. The overwhelming force of this experience is represented by the massive, unprecedented capacity to distribute large profits through intermediations. As documented by the government itself, in the "golden" years - relatively to which we dispose of official figures - the profits coming from authorized mediation alone (i.e. kickbacks) amounted to Lit. 471 billion between 1981 and 1983. These figures can give us an idea of the size of what is probably the main obstacle for anyone wanting to carry out a large-scale conversion program (6).

The growing availability of public funds for the purchase of military means, and the slow transfer of the area of activity from the Third World to inter-Western cooperation, determines and will accompany phenomena of crisis in the Italian arms industry. However, these crises will be relatively checked by the mostly public nature of the enterprises. In any case, experience proves that planning capacity is not a peculiar characteristic of the sector.

For our purposes, the new trends are such as to foresee no future expansion, and in fact will in all likelihood bring about the conditions for a policy of sectional or wider-scale conversion.

It is a well-known fact that the international circumstances have seriously upset our traditional export policy - a policy which had guarantied the absorption of about 60% of the turnover (which has currently dropped to 50%) and the fourth position in the world for Italy among the exporting countries (today it ranks sixth, closely followed by the People's Republic of China).

In particular, the dire economic crisis affecting the developing countries (towards which 90% of our exports has been directed) has contributed to this situation. The drastic reduction of the financial resources of the countries of the Opec area, major buyers of Italian weapons over the last decade; the growing competition on the markets of the Third World exerted by the recently industrialized nations; the diminished feasibility, with respect to the Italian public opinion, of ruthless or illegal methods determined by the onset of dramatic political and moral contradictions (e.g. the consistent weapons exports towards South Africa, or towards theatres of war such as Iran and Iraq) but also relative to security (e.g. the Libyan affair, and the threat which this North African country - the first beneficiary of Italian weapons exports - exerted directly on our country.

The decline of a political stage which can be aptly exemplified by the doings of Colonel Giovannone in Beirut, a real ambassador and permanent mediator of a large number of relations and interests, implies therefore precise consequences on the operativity of the Italian arms export, though it does not affect its turbid ambitions and characteristics. Nor will these be suppressed by the bill which is being discussed by the two Houses of Parliament regarding the regulation of the arms trade, which seems adequate only to gradually introduce mechanisms of greater publicity and partial responsibilization of the operators.

As to the remaining 50% of the production of the Italian military industry, destined to our own armed forces, refer to a survey carried out in the fifth chapter of this book; likewise, it is no exaggeration or oversimplification to state that in Italy a given military doctrine has often prevailed because of the availability of a certain weapon system appear to be illegitimate in that it exemplifies too much. Seldom has a given weapon system been purchased on the basis of doctrines and strategies apt to protect the national security.

Ultimately, in our country, we are coming to terms with a military industry which does not yet represent a key sector, is largely controlled by the state and is undergoing a deep transformation which will necessarily call for a rationalization of behaviours and structures with respect to which the public and even the most motivated operators of the field have not yet matured a reflexion on the possible civilian alternatives.

Hence the major importance for Parliament to adopt a legislative instrument capable of orienting the activity of the industrial sector which currently produces for military purposes towards a new, aware and responsible direction.

The lack of data and surveys on the feasibility of economic conversion has many reasons, which only the birth of a public research and planning activity can make up for. As opposed to those who exaggerate the so-called "fallouts" on the civilian field of the investments in the military sector, an extremely important statement was provided by Carlo Rubbia. Rubbia said "give me $26 billion - the initial outlay for research on the SDI - and I will show you what fine scientific and technological fallout for civilian purposes can be achieved without intervening in the military field..."

The peculiar and overwhelmingly successful evolution of the Japanese military apparatus after the war is well-known. It has been favoured, if not downright caused, by a share of research and development for military purposes which amounts to a share between 1 and 2 percent of the total R&D. The American economist Lloyd Dumas remarks that "the military 'world' is characterized by the sale to a single buyer (the government), a strong pressure for the maximum cost-effectiveness of the products and a relatively poor attention for the costs. The civilian 'world' instead is characterized by markets with many buyers, attention towards the goods produced but not to the maximum cost-effectiveness and a very strong emphasis on cost minimization" (7).

Unquestionably, recent developments in the production of armaments (effectively illustrated by the expression "baroque arsenals" first used by Mary Kaldor) show an exasperation of the sophistication and therefore of the specificities of R&D and of the military production such as to make the "fallout" on the civilian field very limited and to make us come to terms with sky-rocketing costs and a very fast obsolescence of the most modern weapons systems (very soon, the emerging technologies, especially airspace ones, will undermine the same traditional platforms: ships, tanks, aircraft).

At any rate, we will be able to answer to our critics that in the face of a political choice that aims at re-orienting them for civilian purposes, those companies which have expanded by virtue of their fallout on the civilian field will be able to prove these qualities at a moment in which the international circumstances or an internal initiative finally become rational and not subordinated to the arms race were to lead to a process of partial or even general conversion. The Western industrial world has been through far more complex and delicate moments, for example in the violent phase of postwar reconversion, than that which Italy would have to face in order to restructure a sector that offers jobs for a scant 80,000 workers.

An excellent ground for testing and initiative could be the policy of development aid and struggle against hunger, malnutrition and disease in the Third and Fourth World. In this field, it would be possible, by having access for certain public investments that amount to an annual share corresponding to the one allotted for the purchase of goods and services for the armed forces (and which are destined to grow) to plan a rationalization of the Italian interventions by opening small and medium-scale plants for renewable energy sources, agricultural and irrigation technologies, stocking facilities, constructions, mechanical means, health units, communications facilities, rescue means for calamities. Vast productive sectors could be involved, in accordance with the same directional and operative structures of the armed forces in the framework of a major political action and presence for the security and foreign policy of our country.

3. Introduction to the radical bill for conversion

The legislative initiative and consequent government activity regarding the industrial conversion of the companies that produce goods and services for military uses cannot and should not concern the general or partial guidelines and planning of the productive transformation of the military industry for civilian purposes. Such issues need to be confronted and solved in the same fora in which the security policy and allocation of the country's resources are decided. The aim of this bill is to define the procedures and fora in which, once the necessary political decisions have been made, to realize a program of industrial conversion (i.e. favour the conditions for a similar plan to take place).

Embarking on a process of limited or total conversion of the companies that operate in the military sector without the necessary elements and a strict planning would have destabilizing effects from the political, economic, and productive point of view as well as on employment. In fact it would be an impossible venture.

Article 1 of the present bill provides for the institution of the commission for industrial conversion at the Presidency of the Council of Ministers, with the purpose of representing the central point of reference of the conversion activity both for the organization of the data regarding the productive structure for military purposes and for the development of the conversion plans. Article 2 establishes that the commission will prepare a program of guidelines for industrial conversion, as a practical guide - on the basis of a macroeconomic study of the productive reality and of the market - to organize the requalification of the workers of the military industry and the transformation of the facilities; the solution of the normative and contractual problems.

Special importance will be given to the survey of all companies, with their specific characteristics. It is a known fact that the almost insurmountable obstacle not only to a possible conversion, but even for the mere analysis of the reality of the military industry, is currently represented by the unavailability of data. Article 3 lists the sectors towards which the conversion activity will need to concentrate, and defines the field of cooperation between the commission and the local committees for alternative uses. The latter - regulated by article 4 - are responsible, among other things, of developing plans for the partial or total conversion of the companies operating in the province of competence; detailed plans regarding "the alternative use and restructuring of the existing technologies as well as the requalification and training of the personnel according to the proposed changes of jobs", as it is obvious that each situation, with its peculiarities, calls for specific initiatives. The committees also

represent the local observatory for the gathering of data relative to ownership control, turnover, personnel, production, R&D. Such data will be updated every six months.

Article 5 provides for the creation of the solidarity fund for workers of the companies involved in a conversion process, who will benefit from a range of public interventions of protection. Such program will include workers who do not intend to continue their activity in companies operating in the military sector "for inalienable reasons of conscience".

The fund for economic reorganization, capable of issuing subsidized loans and contributions to companies that have prepared a plan for partial or total conversion, is established by art. 6; the maintenance of the employment levels and the actual progressive application of the plan are the requisites to obtain such loans and contributions.

The financial coverage of the measure is guarantied by art. 7, through a raise in the taxes on the production of weapons and through the payment on the part of the companies of the military sector of 1% of their annual turnover. Such revenues are divided proportionally between the various subjects established in the bill.

4. Text of the radical bill for the conversion of the military industry

Honourable colleagues! The proposers believe that only a careful and in-depth knowledge of the current situation and of the possible alternatives enables to adopt a new policy for the companies that presently operate in the military sector. For this purpose, they hope that the present bill will open a debate in the country and among the political, economic and social forces and find a concrete correspondence in Parliament.

The undersigned signers believe they are making an exception with respect to the behaviour adopted by the Radical Parliamentary Group in the present Legislature, which provides for the non-presentation of legislative initiatives except in cases in which the respect of the Rules is previously and politically ensured, as far as the times of the consideration and the voting of the bill are concerned. This is due to the preventive announcement of the endorsement of the present bill by the Acli, the Nonviolent Movement, Mani Tese, several committees and coordinations of conscientious objectors, Missione Oggi, Pace e Sviluppo, "Green" councillors and exponents, the Movimento Cristiani per la Pace.

The proposers are committed to urging immediate signature of the bill by the representatives of the other parliamentary groups.

Art. 1.

A commission for industrial conversion is established at the Presidency of the Council of Ministers, to realize a permanent observatory on the national military productive structure and to prepare plans for the industrial conversion for civilian purposes of companies that produce goods or services for military purposes.

The commission is formed by a representative each for the Ministries of Defense, of Industry and Trade, of Labour, of Scientific and Technological Research, of Treasury, of State Participations, three representatives of the unions, three representatives of the entrepreneurial organizations, three experts appointed by the Presidency of the Council and three experts appointed in agreement between the President of the Senate of the Republic and the President of the Chamber of Deputies.

The Commission elects its President.

The President of the Council of Ministers, with a special decree, appoints the Secretary of the Commission and establishes the organization and retribution of the personnel, which will not be inferior in any case to 7 units - and the recruiting of advisers (also temporary) - in any case no less than 7 units - as well as the remuneration for the members of the commission.

The Commission for industrial conversion prepares the Program of guidelines for industrial conversion. The Program will be drafted within 18 months of the coming into effect of this bill, and will be updated yearly. The Program is based on a macroeconomic assessment of the productive activity and of the national and international market. It illustrates the guidelines of the practical methods for the industrial conversion of the military sector to the civilian one, with particular reference to the retraining and reorganization of personnel (managerial, technical, administrative and productive), the transformation of the plants, the normative and contractual issues, the implications vis-à-vis other related productive sectors as well as towards the communities and areas involved.

An analytical survey of the companies that produce goods or services for military purposes will be attached yearly to the Program. It will specify the ownership control, the turnover and main economic indicators, the number of personnel and their professional qualification, the material on the production line, the one produced in the past and the R&D activities currently under way.

The Program is forwarded to the local committees for the alternative uses specified by art. 4 of the present bill, as well as to the competent commissions of the Chamber and Senate.

Art. 3

The Commission for industrial conversion drafts programs for the productive conversion from the military sector to the civilian one, with special emphasis on mature technologies in the fields of electronics, computer communications, airspace, aeronautic, energy, agriculture, civil prevention and protection, safeguard of the environment and with special reference to the requirements and objectives of the struggle against hunger and malnutrition and aid development for developing countries.

The Commission cooperates with the local committees for the alternative uses specified by art. 4 of the present bill, in order to devise concrete solutions at the productive and employment level for the partial or total conversion of the companies and productive sectors active for military purposes.

The Commission studies and develops re-recruitment projects for civilian and military personnel in the framework of programs and hypotheses for the restructuring of the Defense Administration.

Art. 4

The committees for alternative uses are established on a provincial basis, in the provinces where there are companies that produce goods and services for military uses which employ at least one hundred people.

On the basis of updated assessments of the productive, economic and employment situation, the committees develop Plans for the partial or total conversion of the companies operating in the province of competence for civilian purposes, according to the guidelines outlined in art. 3 of this bill.

The Plans will need to contain detailed projects regarding the alternative use and the restructuring of the existing facilities and technologies, as well as the requalification and training of the personnel according to the proposed re-employment.

The committees are formed by 7 members, appointed with a decree by the President of the Council of Ministers: three experts appointed by the Presidents of the Provincial Council in agreement with the Mayors of the Municipalities on whose territories the companies operate, two representatives of the trade unions and two representatives of the companies designated by the competent territorial organizations.

The committees provide for a six-monthly update of the assessment of the local productive structure, with special reference to ownership control, turnover, personnel (with relative professional qualifications), material being produced, research and development activities.

Such analytical documentation is forwarded to the commission for industrial conversion at the Presidency of the Council of Ministers.

The Committees may resort to advisers (no more than three) and dispose of personnel (no more than three units) in compliance with the third and second last commas of art. 3 bis of bill n. 285 of June 1, 1977, and subsequent modifications and integrations.

Art. 5

The solidarity Fund for workers of companies operating in the military sector involved in a process of industrial conversion is set up at the Ministry of Industry and Trade. The fund has an autonomous administration, and a management in conformity with art. 9, bill 1041 of November 25, 1971, and is organized with a decree by the President of the Council of Ministers in agreement with the Ministers of Industry and Trade, and of Labour.

The benefits issued by the Fund and granted to workers, employees, technicians working for companies that operate in the military sector who have been working for such companies for at least six months before the coming into effect of this bill, who, for inalienable reasons of conscience, declare to the competent Provincial office of Employment that they do not intend to continue working for such companies.

The subjects specified in the previous comma have the right to be paid an additional salary in compliance with bill n. 675 of August 12, 1977, for a period of no more than 10 months.

The payment of the salary ceases when the worker is hired by another company.

Throughout the period of payment of the benefits, the workers specified in this article are admitted, with priority over any other worker, to attend the courses for training and professional requalification organized in accordance with bill n. 845 of December 21, 1978. In cases of unjustified refusal on the part of the worker, the payment of the benefits is suspended.

Throughout the same period, cooperatives of production and work, formed exclusively by workers of the type specified by the present article, are admitted to enjoy the benefits listed under chapter II of bill n. 49 of February 27, 1985.

During this same period, subsidized loans and contributions on the interests for funds decided by the banks on medium term may be granted to workers of the type specified by this article who intend to carry out an autonomous work.

On issuing the benefits specified by the two previous commas, the payment of the benefits cases.

After the period specified in comma 3, the workers who are still unemployed have a right to the payment of half the salary specified in the above comma for a period of no more than twelve months, and are enrolled in the ordinary recruitment lists with priority over all other worker seeking a job. The subjects hired by the companies working in the military sector who refuse to be hired for inalienable reasons of conscience automatically obtain the reinstatement of the position previously occupied in the lists.

Art. 6

The fund for economic reorganization is set up at the Ministry of Industry and Trade, with the purpose of encouraging the productive conversion of companies operating in the military sector.

The Fund is organized through a decree of the President of the Council of Ministers, of Defense and of Scientific and Technological Research. With the sums of the Fund, in the context of the guidelines summarized in art. 3, the Commission for Industrial Conversion, in agreement with the committees for alternative uses, can dispose of subsidized loans, contributions in the interests for funds decided by the banks on medium term, direct contribution for companies that have prepared a Plan for the partial or total conversion of their activities for civilian purposes.

The amount of the sum is decided according to the maintenance of the employment levels provided by the Plan. The actual issuing is linked to the progressive implementation of the same plan.

The burden of the current bill, placed for each of the years 1986, 1987 and 1988 at Lit. 800 billion, is covered in the following ways:

a) a 100% and a 200% increase of the taxes on government concessions, as in numbers 25-I respectively), 26, 31 and 34 and numbers 30 a) and b), 32, 33 and 35 of the tariffs attached to the decree of the President of the Republic n. 641 of October 26, 1972, and subsequent modifications and integrations;

b) payment to the treasury on the part of the companies that produce the military material of 1% of their yearly turnover.

Such payment is disciplined by a decree of the President of the Council of Ministers to be issued no later than 30 days after the coming into effect of this bill.

The sums listed at points a) and b) are thus divided:

a) 10% to the Commission for industrial Conversion at the Presidency of the Council;

b) 20% to the committees for alternative uses, by means of a proportional division established by the Commission for Industrial Conversion;

c) 35% to the solidarity Fund listed under art. 5 of this bill,

d) the remaining 35% to the Fund for economic reorganization listed at art. 6 of this bill.

NOTES

1. MELMAN S., ``Conversione economica: perché?''; "Irdisp Papers" n. 1, Roma, 1985, p. 6.

2. Cf. MOSLEY H. G., "The Arms Race: Economic and Social Consequences", Lexington Books, Lexington (MA), 1985, p. 32 and foll..

3. Cf. DEGRASSE R. W. Jr., ``The Military Economy'', in GORDON S., MCFADDEN D. (editor), "Economic Conversion, Revitalizing American Economy", Ballinger, Cambridge (MA), 1984, p. 12.

4. LEONTIEF W., DUCHIN F., "La spesa militare - dati, cifre e conseguenze per l'economia mondiale", Mondadori, Milano, 1984, p. 19.

5. ADAMS G., ``Economic conversion misses the point'', "Bulletin of the Atomic Scientist", feb. 1986, pp. 24-28; DUMAS L. J., GORDON S., BEAN K., ``Economic conversion: an exchange'', "Bulletin of the Atomic Scientist", June-July 1986, pp. 45-50; ADAMS G., ``A rejoinder'', "ibidem", pp. 50-51.

6. PARLIAMENTARY PROCEEDINGS, Chamber of Deputies, stenographic account of the afternoon session of November 13, 1985.

7. DUMAS L. J., in GORDON S., MCFADDEN D., "op. cit."