Against the rubble-strewn landscape of the national economy, the defense industry stands in sharp relief, a growing industry surrounded by declining ones.
President Reagan's unprecedented peacetime buildup, underway for two years and not yet at its peak, has produced, if not a boom for defense contractors, at least the anticipation of a steadily growing market. In broader terms, it also has produced a growing debate over the impact of the buildup on the economy.
Defense spending will increase in real terms by 10 percent in 1983, with outlays totaling $88.3 billion. That figure is in striking contrast to the low of approximately $65 billion in the mid-1970s. By 1987, the total should reach approximately $118.5 billion.
Increased military spending has buffered industries that sell goods and services to the Department of Defense from some of the recession's impact. For instance, aerospace industry sales declined only slightly in 1982, falling from $63.5 billion in 1981 to $63.3 billion.
It was the first drop in a decade. Without military contracts, it would have been precipitous, according to the Aeropsace Industries Assocation of America. Sales of civil aircraft dropped 40 percent, but that slide was offset by substantial gains in military and space sales.
As good as the buildup is for the companies that contract with the Department of Defense--such companies as McDonnell Douglas, United Technologies, General Dynamics, General Electric and Boeing--critics have questioned whether the buildup diverts badly needed capital from other sectors of the economy and may, therefore, delay recovery.
Even generally supportive Republican senators have questioned whether a nation facing staggering deficits should add to the red ink by increasing military spending.
Supporters of the buildup argue that it helps offset unemployment in other areas and that, in any event, national security considerations are compelling enough to override other arguments.
"I think it's very good for the economy--it keeps us from being overrun by the Russians," said Herb Stein, former chairman of the Council of Economic Advisers and now an economist with the American Enterprise Institute. "If we make a decision to divert more of the national output for defense, you would expect that output and employment will rise more in that sector and less in other sectors."
"I think it is going to provide a stimulus, but the question is: Is it a stimulus in a direction that is not, in the long run, going to serve us well?" said Robert DeGrasse, a project director with the Council on Economic Priorities who is working on a study of the economic implications of military spending.
DeGrasse said that defense spending has been justified as a sort of Keynesian tool to stimulate the economy but that, in fact, defense industries tend not to be very labor intensive and tend to use a skilled work force rather than workers from the ranks of the unskilled or semiskilled jobless.
He also argued that defense spending diverts highly skilled technical workers and capital away from other types of high-tech production, adding to the nation's problems in competing with other producing nations.
"Defense spending, on the whole, will not force significant structural changes in the U.S economy, but will provide a strong fiscal stimulant to the sluggish heavy manufacturing sector and the fast-paced electronics industries," the Commerce Department's Bureau of Industrial Economics said in an analysis.
The study pointed to another phenomenon--the increasing dependence in certain industries on the military as a customer. "By 1987, 29 industries will have defense output shares equal or greater than 10 percent of their total output," according to the study. "This is in contrast to 1979 when only 20 industries were so dependent upon defense markets. These industries serving the defense market can look forward to good growth prospects."
Among the companies expected to benefit from the military spending increase are McDonnell Douglas, which produces fighter planes and cruise missiles, among other items, and in previous years has been the top-dollar defense contractor.
McDonnell Douglas government business volume is expected to be up about 20 percent in 1983 over 1982. Much of that increase reflects a buildup in previously scheduled production rather than the rearmament program. For instance, full-scale production of the F18 fighter plane will begin this year.
A spokesman for United Technologies, the nation's No. 2 defense contractor, which produces aircraft engines for fighter planes in its Pratt and Whitney division and helicopters in its Sikorski division, noted that government sales, including defense sales, represent about a third of the corporation's business.
"They have helped in the past year to offset sluggishness in commercial sales," he said, but added that the company is hesitant to project the defense budget's impact on sales or earnings this year because of continuing debate on the budget.
Other major defense contractors include General Dynamics, which recently bought the Chrysler tank division and also produces submarines, and General Electric, which attributes approximately a 10th of its sales to military contracts, principally for aerospace and aircraft engines. "In 1983, we anticipate sales in both those categories will continue to be good," said Larry Vaber, a GE spokesman.
Boeing Corp. is building air-launched cruise missiles for the military in addition to Airborne Warning and Control Systems (AWACS) airplanes and improvements on the B52 bomber. Lockheed works on the Trident missiles. Hughes Aircraft produces such products as the Phoenix air-to-air missile.
Raytheon, a producer of missiles, is also a major defense electronics contractor. Its capabilities "are ideally suited for the increasing defense dollars that are expected to go into command, control, communications and intelligence, based on the lessons of recent armed conflicts," noted a recent Dean Witter Reynolds Inc. analysis.
Closer to home, Martin Marietta Corp. would benefit substantially from construction of the MX missile, which would mean billions of dollars in revenues to the firm. Marietta has already received about $1.1 billion in MX contracts.
Also in line to benefit from the arms buildup, which includes expansion of the U.S. naval fleet by 119 ships, are shipyards, including the Bath shipyards in Maine and Tenneco's Newport News, Va., shipbuilding subsidiary.