The
time to start planning an economic transition is now.
By
After months of whispered warnings, Russia’s economic
troubles made global headlines when its currency collapsed halfway through
December.
Amid the tumbling price of oil, the ruble has
fallen to record lows, bringing the country to its
most serious economic crisis since the late 1990s.
Topping most lists of reasons for the collapse is
Russia’s failure to diversify its economy. At least some of the flaws in its
strategy of putting all those eggs in that one oil-and-gas basket are now in
full view.
It was during those tumultuous years when history was
pushing the Soviet Union into its grave. Central planners began scrambling to
convert portions of the vast state enterprise of military production — the
enterprise that had so bankrupted the empire — to produce the consumer goods
that Soviet citizens had long gone without.
One day the managers of a Soviet tank plant, for example,
received a directive to convert their production lines to produce shoes. The
timetable was: do it today. They didn’t succeed.
Economic development experts agree that the time to
diversify is not after an economic shock, but before it. Scrambling is no way
to manage a transition to new economic activity. Since the bloodless end to the
Cold War was foreseen by almost nobody, significant planning for an economic
transition in advance wasn’t really in the cards.
But now, in the United States at least, it is. Currently
the country is in the first stage of a modest military downsizing. We’re
about a third of the way through the ten-year framework of defense cuts
mandated by the Budget Control Act of 2011.
Assuming Congress doesn’t scale back this plan or even
dismantle it altogether, the resulting downsizing will still be the shallowest
in U.S. history.
It’s a downsizing of the post-9/11 surge, during which
Pentagon spending nearly doubled. So the cuts will still leave a U.S. military
budget higher, adjusting for inflation, than it was during nearly every year of
the Cold War — back when we had an actual adversary that was trying to match us
dollar for military dollar.
Now, no such adversary exists. Thinking of China? Not
even close: The United States spends about six times as much on its military as
Beijing.
Even so, the U.S. defense industry’s modest contraction
is being felt in communities across the country. By the end of the ten-year
cuts, many more communities will be affected.
This is the time for those communities that are dependent
on Pentagon contracts to work on strategies to reduce this vulnerability. To
get ahead of the curve.
There is actually Pentagon money available for this
purpose. Its Office of Economic Adjustment exists
to give planning grants and technical assistance to communities recognizing the
need to diversify.
As we in the United States struggle to understand what’s
going on in Russia and how to respond to it, at least one thing is clear:
Moscow’s failure to move beyond economic structures dominated first by military
production, and now by fossil fuels, can serve as a cautionary tale and call to
action.
EDITOR'S NOTE: Over-reliance on Electric Boat is a pretty good example of what this author is talking about. What if the US decided at some point that we simply don't need as many submarines as we now have, never mind all the subs that are in the production pipeline? The economies in eastern Connecticut and Rhode Island would be devastated. - wc
Diversified economies are stronger. They take time and
planning. Wait to diversify until the bottom falls out of your existing
economic base, and your chances for a smooth transition decline precipitously.
Turning an economy based on making tanks into one that
makes shoes can’t be done in a day.
