NARRATOR: Three months after Bill Clinton became president, he announced his blueprint for helping America adjust to the end of the Cold War and reduced military spending.

President CLINTON: "Clearly, defense conversion can be done and can be done well, making change our friend and not our enemy."

CONGRESSMAN: "Let's stop using the defense budget as the cash cow for everything else under the sun."

NARRATOR: Yet today, many members of Congress want to cut government investment for conversion and return to the days of the later 1980s, when the government did very little to help communities adjust to military cutbacks.

Rep. JAMES LONGLEY (R-ME): I've got to tell you that, in general, I'm very cynical as to the ability of government, through the Defense Department or through the government as a whole, to create the kind of job growth they want to talk about.

NARRATOR: This week "AMERICA'S DEFENSE MONITOR" looks at President Clinton, the Congress, and conversion, and how people, industries and the government are adjusting to the post-Cold War world.

ADM JOHN SHANAHAN (USN, Ret.): It's ironic today that the Congress is more apt to fund weapons programs because of the threat to jobs than a threat from a foreign power. Federally funded conversion programs are designed to help defense-related industries and communities transition from defense to domestic activities. However, the current Congress is having second thoughts regarding the administration's conversion efforts. Our program today deals with that debate.

NARRATOR: The eighties were a boom time for the US military and defense contractors. As you can see from this graph, military spending shot up by almost 60 percent in real terms between 1979 and 1989. Hundreds of thousands of people gained new jobs building airplanes, tanks and ships.

President CLINTON (January 20, 1993): "I, William Jefferson Clinton, do solemnly swear."

NARRATOR: However, by the time Bill Clinton was sworn-in as president, America had lost an enemy. Military spending had declined approximately 18 percent in real terms from its peak of $304 billion in 1989. Employment in military-related industries dropped by about one million people. And states like California, Maine and Texas, which had experienced military-related job growth during the boom years of the 1980s, saw unemployment rise above the national average.

Many people saw the end of the Cold War as offering a big opportunity for America to invest and create jobs and programs that would help meet our vast array of domestic needs. Resources that were once put into building the world's most powerful military could now be used to rebuild America's cities, its schools, and transportation networks. And at the same time, an opportunity to put people to work building things citizens need every day, instead of things we hope will never have to be used.

President GEORGE BUSH (April 6, 1990, before the American Association of Newspaper Editors):

"Look at what's happened where bases have -- and facilities have closed. And for the most part, I think you'll find that the economy compensates and takes care of people."

NARRATOR: Because the Bush administration believed the government should not intervene in the economy, very little was done to help communities adjust to Defense Department cuts. However, with unemployment rising, Congress passed the Defense Conversion Reinvestment and Transition Assistance Act to help people and business adjust to the reductions in military spending.

President CLINTON: "Today, I want to explain how we're going to put your money to work to put Americans to work."

NARRATOR: President Clinton came to office pledging to mobilize federal resources to put people back to work. His defense conversion plan originally called for spending almost

$20 billion between 1993 and 1997 on a wide variety of programs to move the nation from unneeded military production to the meeting of domestic needs: From worker retraining, assistance to ship builders and other defense contractors, to communities affected by base closings.

President CLINTON (March 19, 1993:) "We seek to go beyond the debate of the past in which some thought government alone could do everything and others claimed government could do nothing. In this area, there are two things government can do to aid companies like this one: Promote dual-use research and promote civilian use of technology that was formerly developed for military purposes."

NARRATOR: Today a major element in the president's defense transition program is the Technology Reinvestment Project, or TRP. It encourages defense contractors to develop and market dual-use products; that is, products that can be used by both the military and civilian sectors. Successful TRP applicants -- companies, universities and other organizations -- must match federal funds with their own money. So far, over 3000 proposals have been submitted; 251 have received awards.

But TRP is controversial. Conversion advocates say it provides the wrong kind of help to companies who want to convert from military to civilian products. Many Republicans in Congress think TRP is wasting money which could be better spent on other military priorities.

Conversely, TRP supporters say it will lead to the development of new technologies the Defense Department needs, while also having a secondary benefit of helping companies find new civilian markets for their products.

KITTY GILLMAN: What TRP does is it supports research and development that is built on an integrated military and commercial base and to help the military get what it needs. It also helps the civilian side of the economy because the military often invests in very leading edge, risky technologies that civilian industries might not want to put their money into. But they turn out, if they pay off, then they pay off for the civilian side of the economy, too, so it helps.

CHRISTINE EVANS-KLOCK: It has the wrong priority. It thinks that technology is the solution to defense-dependent companies' problems.

NARRATOR: Christine Evans-Klock is an economist at a conversion advocacy organization in Washington.

Ms. EVANS-KLOCK: Defense companies tell us all the time that they have technology, they have invested in new equipment and modern technology; what they don't have is knowledge of markets, how to respond to consumers. So, it's just the wrong priority. It's not what defense companies tell us they need.

NARRATOR: Finding new civilian markets and learning how to sell to new customers is a major obstacle for defense contractors who want to convert.

GEN LAWRENCE SKIBBIE: I think the most basic problem is trying to identify what market they're going to go into.

NARRATOR: GEN Lawrence Skibbie heads the American Defense Preparedness Association, an association of defense contractors.

GEN SKIBBIE: And that was best demonstrated to me when a company up here in Pennsylvania called BMY, Bowen, McLaughlin, York, and they make tracked combat vehicles. Now tracked combat vehicles are light tanks, only they're not tanks, they carry guns. And so, they have a large manufacturing facility and one of the various defense conversion commissions went in to visit their facility. And they looked around and they said, 'My gosh, you could make farm implements here. You could make tractors.'

And the president of BMY said, 'Yes, we could. We have that capability. Unfortunately, John Deere, Caterpillar, Koboda of Japan are already in that market. And so, if I were to try to enter that market, number one, it would be a new event for us. Number two, we don't have a distribution system, a sales network or a service network. And, number three, who am I going to get to invest in such an effort when the risk is very high, I'm going up against established manufacturers?'

NARRATOR: According to Clinton administration officials, the Technology Reinvestment Program is designed to encourage defense contractors -- who focus on producing relatively small amounts of highly technologically advanced products without regard to cost -- to team up with commercial companies that emphasize producing large quantities as inexpensively as possible. They hope that defense contractors will learn from civilian-oriented firms how to manufacture products more cheaply.

Ms. GILLMAN: There's something called the ForeWarn System, which is for school buses. It's a little display and a little sensor that can look under and around, under the wheels of the school bus.

NARRATOR: The ForeWarn System emerged when Hughes Electronics teamed up with Delco Electronics to design and build radar modules for both military and commercial use.

Ms. GILLMAN: I talked to a woman in Ohio who actually said she herself had saved a child's life through the use of the ForeWarn System. Now that system is based on a military technology. It's based on phase-to-ray radar sets that use Mimic -- the Mimic technology. When that was first developed for the military, it was developed for advanced fighter aircraft and it was so expensive that the military -- even the military couldn't afford to use it on all of the planes that they intended to build.

NARRATOR: Hughes and Delco were able to redesign both the production process and the microwave modules as reduced cost. This flexible assembly line will make electronic components for both civilian and military customers.

Ms. GILLMAN: I think you could call that a real conversion. It's a real use of a military technology for a commercial purpose that enriches and helps both of those companies and helps the employees of both those companies.

NARRATOR: Christine Evans-Klock is skeptical that the TRP's emphasis on dual use will help companies find new civilian markets.

Ms. EVANS-KLOCK: Its supposed advantage is that it's to help companies gain new technologies at lower cost. But what it really does is keep them dependent on the defense contracts instead of weaning them from the Defense Department and teaching them how to be competitive in the commercial market.

NARRATOR: Labor has a big stake in defense contractors finding new civilian markets when the Pentagon cuts back on its purchases because most big defense contractors have laid off significant number of workers.

Barbara Warden represents roughly 80,000 members of the United Automobile Workers Union who work in the defense industry. She thinks the TRP has potential, but faults it for not promoting job retention.

BARBARA WARDEN: When I lobbied on behalf of the UAW last year, our position was and remains that the TRP program is a good program as far as it goes. We don't believe it went far enough.

NARRATOR: Christine Evans-Klock agrees that one criteria for awarding Technology Reinvestment Project grants should be how many new jobs will be created or how many existing jobs will be preserved.

Ms. EVANS-KLOCK: Congress tried to change TRP in several ways this last year. It recommended that unions be eligible for TRP grants. It recommended that employment retention or creation be a prime criterion in awarding TRP grants. This is the way to improve TRP as conversion.

NARRATOR: At Bath Iron Works in Maine, redefining management-labor relations with an emphasis on maintaining jobs is seen as key to future success.

BUZZ FITZGERALD: There's enormous untapped wisdom, if you will, in the workforce that really has gone untapped.

NARRATOR: Since 1984, Bath Iron Works has made warships exclusively for the Navy. In 1993, it received a TRP grant to develop new manufacturing techniques to enable them to build ships more efficiently and compete in the international commercial ship building market. But just as importantly, according to Buzz Fitzgerald, Bath Iron Works also created a new partnership between its workers and management.

Mr. FITZGERALD: When you think about the diversification of our defense industry that's obviously necessary, this is where the breakthrough is going to come, in my opinion.

NARRATOR: In 1994, Bath Iron Works signed a labor-management agreement with its workers which guaranteed job security. In exchange, workers agreed to learn new associated skills and to be willing to take on new tasks.

Mr. FITZGERALD: So, if we're going to compete, the break-through has to come in what's possible with people in changing the way we behave with respect to each other in the workplace.

NARRATOR: Besides the Technology Reinvestment Project, the Clinton administration has supported numerous much smaller conversion initiatives. For example, the budget of the Department of Defense's Office of Economic Adjustment has had its relatively tiny budget increased by about 25 percent since 1992.

Ms. EVANS-KLOCK: The Office of Economic Assistance -- or Adjustment has one of the most effective programs for conversion.

NARRATOR: This office assists localities in planning for the alternative use of bases and factories when confronted by military cutbacks. The Department of Commerce's Manufacturing Extension Centers have jumped from seven to 44 and the Clinton administration hopes to expand the number of centers to 100 nationwide by 1997.

These centers provide small manufacturers assistance to improve production processes, identify new markets and obtain financing.

SUSIE SCHWEPPE: One thing that is underway is a manufacturing modernization project, which is really headed by the Maine Science and Technology Foundation.

NARRATOR: Susie Schweppe, of the Maine Economic Conversion Project, a nonprofit organization, thinks these centers, like the Maine Science and Technology Foundation, can have substantial rewards.

Ms. SCHWEPPE: And that is basically to help small and medium-size defense and non-defense manufacturers get the kinds of technologies and the resources, whether it's finance or whatever, together to either modernize and stay in business, or spinoff businesses, or whatever. But it's specific to meet those needs of the small and medium-sized businesses.

INTERVIEWER: So, when defense contracts are cut back, they have someplace else to go to?

Ms. SCHWEPPE: Exactly.

NARRATOR: The Clinton administration also created the Office of Economic Conversion Information.

Ms. EVANS-KLOCK: We now have a clearinghouse for informa- tion on conversion program. Companies, workers, communities can call in and try to have a one-stop place to find out information about all the other programs.

NARRATOR: By calling 1-800-345-1222, or using the Internet, you can access the clearinghouse office. You can get information to help craft a local response to a particular problem.

Let's say I'm a defense contractor who's just found out that my contract for the F-16 has been cancelled. By calling the clearinghouse, I can get information on what other contractors have done in similar situations. I can also find out what programs exist to help me, from the Small Business Administration to other avenues.

Yet some observers think that while these numerous programs to assist communities, companies and people adjust to military spending reductions are a positive step in the right direction, they're insufficient and that the federal government is not investing enough in conversion programs.

Ms. EVANS-KLOCK: Clinton campaigned on a plank of transferring dollar for dollar decreases in defense spending into civilian investments that would create jobs and meet the pent-up demand for public services that have been sacrificed or neglected during the Cold War. For example, infrastructure and transporta-tion, clean technologies, environmental cleanup technologies, low and middle-income housing, and health technologies. All of these are public services that have been neglected during the Cold War and which require public investment. All of them would create many more jobs than are being lost in defense industries today.

NARRATOR: Christine Evans-Klock believes more federal investment projects, like the current upgrading of Amtrak along the East Coast, ought to be funded because they provide conversion opportunities for defense contractors while meeting domestic needs. The electronic controls of this X2000 would probably be built at one of Raytheon's defense manufacturing facilities, providing jobs to people who once made weapons.

However, Kitty Gillman thinks the federal government doesn't have the money to undertake numerous big spending initiatives.

Ms. GILLMAN: The government is strapped for money. It costs a lot of money to be the purchaser of something as big as the Department of Defense purchases were a few years ago. You know, we did all that on the cuff in the 1980s. That's why we have a $4 trillion debt. The government bought all those fighter airplanes, and aircraft, and missiles, and so forth on credit and now we're trying to draw down that debt. So, we don't really have the resources to make huge investments in civilian enterprises, large scale civilian enterprises.

NARRATOR: How have companies adjusted to DoD's shrinking budget?

GEN SKIBBIE: Some have opted to just get out of the defense business. And I think General Electric is an example of that, where they sold off their aerospace activities. Now they are still producing aircraft engines, but they sold off a major portion of their business to Martin Marietta.

Martin Marietta is probably the mirror image of that, where they have said we're going to develop a critical mass in defense, where we will have a variety of sectors covered, that the sectors will be mutually supporting, and so they bought GE Aerospace. They are also combining with Lockheed.

NARRATOR: Northrup and Grumman have merged and are increasing their efforts in defense. General Dynamics is focussing only on military systems in which they can be the most dominant producer. And Loral has expanded its defense business.

Ms. EVANS-KLOCK: Defense contractors have adjusted in two ways. The first way we've defined as "conversion-aversion." They are trying to ignore the fact that defense budgets are going down. They're competing for a bigger piece of a shrinking pie. They're trying to find export markets for their same defense products. Or, they're simply downsizing, laying off workers, selling off parts of their companies' divisions to other companies.

The smaller, mid-size defense companies have fewer assets, produce on the margin. They have to convert if they're going to survive.

NARRATOR: But converting from building products for the Pentagon to building things for civilian use is not that easy for many companies.

Ms. EVANS-KLOCK: They're having a great deal of difficulty because the very characteristics that made them successful defense contractors make them less competitive in commercial markets.

For example, they are very used to providing to military specifications, where the military tells them exactly what, exactly how to produce. They're not used to going out there and finding a commercial market, to be cost-conscious, to deliver on time, to take a next step in developing innovations that they think the consumer might like, to be responsive to changes in customer preferences. Those are characteristics they did not need to be successful DoD contractors and they're having a great deal of difficulty making that transition.

Ms. GILLMAN: So, I think that help for these small and medium-sized businesses is one of the important things that needs to be done. But I think even more important is broader assistance to business, in general; to small start-up businesses, to existing businesses that want to thrive and grow. Community economic redevelopment I think is absolutely a linchpin of the transition from dependence on defense to getting into the civilian world.

NARRATOR: Some members of Congress are skeptical about the government's ability to help businesses create jobs.

Rep. LONGLEY: I've got to tell you that, in general, I'm very cynical as to the ability of government through the Defense Department or through the government as a whole to create the kind of job growth they want to talk about.

NARRATOR: The House of Representatives voted to rescind funds for the Technology Reinvestment Project, as well as significantly scale back other conversion programs. Congressman Longley believes the government more often than not hinders initiative and stifles business development.

Rep. LONGLEY: I think it's absolutely the best economic conversion program and the best economic adaptation program in my mind would be tax relief and regulatory relief. As I go through my district, particularly in the last couple of months, there was hardly a day that I didn't run into somebody, you know, in their twenties or thirties who very recently had 15 or 20 employees, who today had zero employees.

Rep. HOWARD BERMAN (D-CA): Republicans want to lower the capital gains tax and create research and development tax credits. Democrats support some of these efforts, but think that in the area of -- particularly promoting the development of technologies, becoming a bit of a silent partner to some of the entrepreneurs, and the venture capitalists, and technologists in the private sector, we can help facilitate it, make it happen faster, and get benefits for the country and, by the way, for our military.

NARRATOR: One conversion project in which the government has helped create new opportunities for defense contractors, according to Congressman Berman, is CALSTART.

Launched in 1992 with $4 million in government matching support, CALSTART is a consortium of California companies, educational institutions and other organizations whose aim is to develop advanced transportation technologies -- or non-polluting vehicles like this electric car -- while at the same time creating new jobs in California, jobs for people who once worked in defense companies.

To date, CALSTART has developed electric cars and buses, which it hopes will be much in demand as California's more stringent environmental regulations kick-in in 1998.

In the final political calculus, jobs are the issue. Members of Congress come under enormous pressure to vote for unneeded weapons because weapons production provide jobs for their constituents.

NORMAN ORNSTEIN: I think it's hard to find a weapons system now where you didn't see economic arguments come to bear.

NARRATOR: Norman Ornstein is a knowledgeable observer of Capitol Hill at a think tank in Washington.

Mr. ORNSTEIN: In almost every area now, where people would begin to talk about arguments for continuing, maintaining or expanding particular weapons systems, we had at least as much debate over the economic impact as we did over the strategic value in the post-Cold War era.

NARRATOR: According to some observers, without successful economic conversion, Congress will continue to be pressured to vote for weapons systems America does not need for military purposes in order to protect jobs in their districts.

Ms. EVANS-KLOCK: If there were more effective conversion programs, if they were fully funded, if they saw that there were jobs available in non-defense industries, I think this would help them vote against increases in defense spending.

NARRATOR: If businesses aren't assisted in converting and creating new job opportunities for laid off defense workers, will the new Congress be able to resist voting for weapons we don't need?

Mr. ORNSTEIN: Everybody's operating in a new environment now. Everybody's a little bit at sea. New members came in and basically what they said was, 'Our opponents, incumbents, went back home and said look what I've done for you, and voters said forget it. That doesn't matter anymore. We want discipline and spending cuts.' Maybe they're right about that, maybe they're wrong. Maybe they'll find in two years, if they go back out and say, 'I cut all of these things in our local area, but it's good for the country,' that voters will be saying, 'Hey, cut theirs, don't cut ours.' Maybe that will happen.

Rep. LONGLEY: And let me put it from the standpoint of my role as a representative for the 1st District of Maine. My job is to make sure that the jobs that those 8000 workers perform at Bath Iron Works in the building and design of the Aegis destroyers is -- that there's somebody there to stand behind that.

Rep. BERMAN: I think we could do a little more of not building weapons systems that we don't need and take some of those resources and expand these programs even more than we have so far. And I'm very nervous about what will happen in the context of this new Congress and the reshuffling of priorities. I'm afraid we will lose something just as it was starting to get into place and develop.

ADM SHANAHAN: You have now heard some of the pros and cons on the defense conversion debate. The bottom line is whether to continue to spend billions of dollars on unneeded weapons systems in order to keep the defense workplace intact or should we support conversion programs which help move people from defense to the private sector workforce. It is your tax dollar, it is your decision.

For "AMERICA'S DEFENSE MONITOR," I am Jack Shanahan.