at the product-specific level, says the report. More than 4,000 companies left the airframe structural components business; 600 companies quit the anti-friction bearing business; DOD's list of non-powered valve suppliers dropped from 1,310 in 1982 to 890 in 1987; and, during the same period, 668 of 834 vendors stopped supplying navigational instruments to the Pentagon.

The exodus of companies from the defense subtiers is rooted in DOD's overly bureaucratic acquisition system. says McCormack. "Doing business with us is not the greatest deal in the world," he says.

Other studies have uncovered specific problems. In 1985, for instance, a jointservice analysis of the precision guided munitions (PGM) production base revealed that 11 of 20 missile programs headed up by nine different manufacturers were powered by batteries supplied by a single contractor, Eagle Picher of Joplin, Missouri. An average of 61 percent of the components of 20 combined PGM projects were subcontracted and 414 first-subtier suppliers were under contract. A total of 240, or 58 percent, of those 414 first-subtier vendors were either single- or sole-source suppliers. One program, the Navy's air-to-air Sparrow missile, reported that its first subtier contractors had a foreign source dependency in 16 of 57, or 28 percent, of its vendors.

A report, "Bolstering Defense Indus

approximately 70 percent of entire spectrum of the industrial base. "What we have found in talking with the Census Bureau is that an awful lot of the data it produces is useful to us in doing our analysis and understanding industrial-base capability and vulnerabilities," says Kimzey. He says DOD is currently discussing with the Census Bureau ways to modify or better utilize bureau questionnaire methods where data falls short of defense needs.

Last year, Dinet's application was demonstrated in the precision decision optics support system. In its current state, the system can provide the user with information pertaining to the precision optics industry. For example, the program can tell the user that a West German manufacturer, Schott, is the sole supplier of a critical optic component in the Bradley fighting vehicle and supplies its product to four vendors at different levels. The user can also use information pertaining to geographical locations of vendors and raw materials. In the near future, the system will identify alternative sourcing. Given a scenario in which a possible foreign policy consideration would potentially restrict trade to a particular region of the world, the precision decision optics support system could immediately identify all sources that exist within that region and the weapon system they support.

Officials hope Dinet when fully operational will be able to generate similar analyses for any required weapon system, component, raw material, vendor and region of the world.

any influential observers accuse the Pentagon itself of undermining the defense industrial base by its increased purchases of overseas components and a rising number of granted waivers to the 1933 "Buy American" Act. The Fiscal 1989 National Defense Authorization Act contains legislation that gives DOD higher priority to maintain and strengthen the defense industrial base by directing it to centralize its planning and requiring that each service conduct an industrial base vulnerability analysis on one of its weapon systems. DOD was also told to consult with the Commerce Department in negotiating its overseas memorandums of understanding (MOU)-agreements that govern bi- or multilateral defense trade. It was further ordered to author an omnibus policy on the increasingly controversial, compensatory deals known as offsets, that are

'Data bases probably don't scare Russians,' says a DOD official working on the Dinet program.

tagged onto overseas defense sales. The legislation also imposes buy-American provisions on certain special valves and machine tools.

Originally, the legislation was intended to give the Pentagon's undersecretary for acquisition the power to designate domestic suppliers for components judged critical for national security. However, the approved version of the bill was watered down, according to its author, Democratic Sen. Alan J. Dixon of Illinois, chairman of the Armed Services Committee's Subcommittee on Readiness, Sustainability and Support.

The most vociferous buy-American legislation was sponsored last year by Democratic Rep. Mary Rose Oakar of Ohio, who chairs the House Banking, Finance and Urban Affairs Committee's Economic Stabilization Subcommittee. Oakar's bill would have required the president to limit to the maximum extent possible" the production of all weapon systems and their components to U.S.. based manufacturers within five years. The bill was formally approved in subcommittee late in 1988, but did not make it to a floor debate and vote.

Some experts view buy-American requirements as narrowly protectionist; others may embrace them wholeheartedly but take a less strident stance. "Getting into this has always been a delicate thing for me because I don't want to be labeled a protectionist," says Dixon. "I do not like to be at the forefront of what is perceived as protectionism, but I do believe that in both the domestic industrial-base issues and in our national security concerns about productivity, we have to be concerned with any of the necessities of the industrial base."

However, other nations are far less apologetic about trade policies that provide advantages to their own industries. says William G. Phillips, president of the National Council for Industrial Defense (NCID), an advocacy group founded in 1986 that represents small defense contractors and subcontractors. Phillips does not hide his interest in buy-American legislation, saying that one person's protectionism is another's industrial-base preservation. As one of the most vocal buyAmerican proponents on Capitol Hill, NCID brought suit against DOD in federal court in 1988, charging that its broad MOU practices violated federal law. "Someone has to yell loud enough to increase awareness and concern over the erosion of our manufacturing capability,”’ says Phillips.

DOD officials are cool toward broad buy-American proposals and most strongly oppose propping up moribund industries by financing obsolescence. "Just because an industry appears not to be very successful in world markets does not necessarily suggest that DOD should do anything about it," Kimzey says. Only 17 percent of the U.S. bearing output is consumed by DOD, according to Kimzey, who adds that even if DOD were obliged to consume only U.S. bearings, the couple of percentage points that would be added to output totals would not save the bearing industry. "Using the Defense Department procurement budget as the exclusive tool to deal with a weakened subtier structure is not going to solve the problem," he says.

Industrial alert conditions

The Pentagon has established an calating scale of six industrial alert gonditions (Indcon), modeled after its the defense readiness conditions, or Defcons, which govern the state of alert of U.S. military forces.

Under this scale, Indcon 6. repreBents the day-to-day condition of the industrial base. If, for example, U.S. intelligence sources warn that the Sovicts have begun a rapid movement of troops, the Pentagon would move into Indcon 5 and begin planning for the expansion of U.S. industrial production. Once in Indcon 4, long-lead-time iter, would be identified. At Indcon 1, total industrial mobilization would be in effect. Larry Grossman

CSIS' Blackwell agrees. "The problem with protection is that domestic industries get comfortable, fat and don't invest in their futures to regain their competitiveness." he says. "After all, [U.S. suppliers] lost the domestic market to foreign suppliers because they didn't remain competitive."

Foreign dependency grows out of trends that are bigger than the proposed defense-driven solutions. The erosion of the defense industrial base is inextricably linked with the woes of the U.S. economy as a whole. "We live in a world economy. We no longer have 'Fortress America," says McCormack. Rather than attempting to rebuild it against the tidal wave of globalization in the manufacturing marketplace. McCormack says DOD should look at ways of taking advantage of internationalization. Approximately 6 percent of the defense prime contract procurement budget is spent on foreignsourced material, according to McCormack, and of that, 70 percent is related to fuel oil, construction and other services, such as base support and utilities. DOD's procurement of actual hardware amounts to approximately 2 percent of total overseas purchases.

NCID's Phillips contends that such figures are misleading because they do not contain subcontracts or contracts awarded to U.S. primes fulfilled overseas. "Our estimates [of overseas spending] are in the range of $20 billion to $30 billion." he says.

The fundamental question of foreign sourcing of components remains whether such overseas dependencies are indeed vulnerabilities. A 1987 study conducted by the joint precision optical technical group found that domestic production of precision optics-used for laser rangefinders for tanks and high-resolution photographic equipment for satellites, among other things-dropped substantially in the years preceding 1985, and fell even further in 1986 when industry was operating at only 40 percent capacity. Only one U.S. company producing raw optical glass is still in business. Foreign-made finished optical elements made up more than 50 percent of Pentagon consumption in 1986.

This does not necessarily mean that the U.S. optics industry requires protection from foreign sources, contend some industrial-base experts. "There may be foreign competition that is cutting the throat of domestic industry, but we don't know for sure which industries need pro

Defense contractors are leaving the ranks of subtier sources in droves due to overregulation by the Pentagon's bureaucracy, says Robert C. McCormack, deputy undersecretary of defense for industrial and international programs.

tection from unfair foreign trade, which industries need to wither or rust away and which industries we can invest in domestic production and the market will create enough suppliers to meet our military needs," says Blackwell, who served as project director of the "Deterrence in Decay" study.

Another DOD report's conclusions were surprisingly reassuring. A second PGM study of 17 programs found that between 1 percent and 2 percent of the $6 billion spent annually on these weapons ends up in foreign bank accounts. Conducted by the National Defense University's mobilization concepts development center, the report concluded that it would only require a $15 million stockpile of critical foreign parts as a buffer against a complete cutoff until U.S. producers could be counted on to fill the gap. "We found that there were things that could be done to protect ourselves from cutoffs," says the Industrial College's Nunn, who co-authored the 1987 PGM report. It revealed that some parts were purchased from overseas suppliers because of lower cost, etter quality or shorter lead-time, but that only a very small percentage of all foreign-bought components could not in fact be found in

the United States.

In some cases, DOD will in fact pay a premium to have a domestic source for a certain component or raw material. In 1987, Costello told Congress that the United States has only a limited production capacity for polyacrylonitrile, or PAN, a composite fiber that the Japanese use to make golf clubs, tennis rackets and fishing poles. U.S. defense contractors use the petroleum-based substance for the stealthy skin of aircraft and cruise missiles. By law, the Pentagon is now working to ensure that half of its PAN requirements will be met by U.S. suppliers by 1991.

Most defense experts say the legislation and policy directives that have been initiated are undirected. "Present policies affecting the defense industrial base are uncoordinated, incoherent and ill-conceived." concludes the CSIS report. The study accuses current legislation of being steeped in protectionist and pork-barrel tendencies that generally address only selected aspects of the industrial-base problem and waste money. "They can only be characterized as politically motivated," argues the report.

DOD's Kimzey says the Pentagon can employ a variety of strategies rather than taking the protectionist approach. DOD officials propose programs like Sematech, an Austin, Texas-based industry-government consortium that was organized to improve semiconductor production processes. The U.S. government is funding approximately $100 million annually over six years for Sematech, and member companies kick in $900 million. A similar consortium, the National Center for Manufacturing Sciences, was established and funded at $5 million in late 1986 to strengthen and make the machine tool business more competitive in the international marketplace. Another manufacturing initiative is the creation of the Defense Manufacturing Board, a body of 15 corporate executives that will focus attention on industrial-base issues.

But none of the policy questions can be properly addressed until the nature of the problems of the defense industrial base and the relationship between it and current U.S. national security strategy is fully understood. "Currently our strategy is to maintain deterrence through strong active forces," says Blackwell. "We don't have the arsenal of democracy sitting in idle capacity ready to turn on right now. That would require trillions of dollars and bankrupt the country."