Beating Swordmakers into Plowmakers

) WHILE DEFENSE SECRETARY LES ASPIN WAS PROPOSING major military-base closings, President Clinton was campaigning to save jobs in another endangered sector of the economy: the defense industry. Near Baltimore last week he preached the rewards of converting weapons plants to civilian production and unveiled a five-year, $20 billion plan to help make such transitions. Standing before an array of sophisticated nonmilitary products, Clinton praised the Westinghouse Electronics System Group -- mainly a military supplier -- for branching out into such items as wind-shear sensors for civilian aircraft and batteries for electric cars. His message: companies that beat their swords into plowshares will create jobs for American workers.

But the biblical injunction is more easily preached than practiced. Despite Westinghouse's example, Clinton's dream of a large-scale missiles-to-toasters conversion is not happening. So slim are the chances of success that few defense firms are risking money to convert to civilian products. Instead, the most successful are battening down to weather the storm, piling up cash, and paying down debt. General Dynamics CEO William Anders offers this explanation: "Swordmakers don't make good plowmakers."

That is too bad, because a lot of jobs are riding on it. In the past four years, 440,000 defense workers have been laid off -- a figure that is expected to grow to 2.1 million by 2001. By 1997 the defense budget will be only 3% of GNP, the lowest level since the Japanese attacked Pearl Harbor.

Clinton's aid package is designed to encourage what is called "dual-use" products, those that have a civilian as well as military market. But that approach has been greeted with skepticism. Says Anders: "There is no dual use for a tank or submarine."

One problem in developing dual-use production is that manufacturers still must meet the Pentagon's notorious Military Specifications -- "Mil-Specs" -- which dictate combat capabilities not found in off-the-shelf products. Moreover, defense managers accustomed to dealing with one customer -- the Pentagon -- have little experience in marketing, let alone judging consumer demand as a guide to R.-and-D. investment.

Anders has become the leading exponent of an alternative approach to industry survival: sell off anything you're not very good at making, or buy companies that will make you a market leader in one or two areas. Nothing about conversion; Anders doesn't think it works. Under his leadership, General Dynamics, the nation's second largest defense contractor, has sold off several major divisions. Though Wall Street likes what Anders is doing -- General Dynamics stock rose 400% in two years -- critics call him "the Terminator." "After he sells the last light bulb, what's left?" asked an industry observer.

The big reason for the attitudes of Anders and others like him is that most defense contractors that tried to switch to civilian products failed miserably. A recent study by the consulting firm McKinsey & Co. found that fully 80% of military contractors stumbled when they acquired commercial firms.

None of that is happening now, but only because the lesson has apparently been learned: after decades of failure, almost nobody in 1993 wants to try.