Farewell To Arms, Hello To Recovery

Two years ago, the people of southeastern Connecticut were nervously confronting the end of the cold war. There was talk from Washington of shuttering the Groton nuclear submarine base, eliminating 4,500 jobs. At nearby Electric Boat, the General Dynamics Corp. unit that builds the subs, executives wearily planned to slash employment. Residents of an area that relies on the military for 70% of its payroll spoke of pulling up stakes and moving to the Sunbelt.

But Groton dodged the bullet. Not only did the sub base stay open, but the Navy may transfer 3,500 more jobs to town. And the Mashantucket Pequot Indians built a casino complex that employs more than 9,000. The result: The region has added 6,000 service jobs, far offsetting the 800 it lost in manufacturing, and the area's unemployment rate is just 5.3%, vs. 6.1% nationwide.

Groton's recovery is being replicated in a lot of towns where the Pentagon once provided the meal ticket. A robust U.S. recovery that has added 2 million new workers this year is handily offsetting the loss of hundreds of thousands of defense-related jobs. And the economy is finding new work in new industries for those displaced by the shrinking defense business. "Despite all the doomsaying, the economy appears to have absorbed the cuts very well," says Bernard Weinstein of the Center for Economic Development at the University of North Texas.

FIGHTING BACK. Certainly, defense cutbacks have taken a toll. The Defense Budget Project, a Washington think tank, estimates that 1.1 million private-sector jobs have been lost since 1987, with an additional 600,000 more by 1998. "The cutbacks have been severe and involved a lot of pretty good, well-paying jobs," says Yolanda K. Kodrzycki, a senior economist at the Federal Reserve Bank of Boston. More could be coming: The Clinton Administration is mulling the cancellation or delay of such new programs as the F-22 fighter and the Osprey helicopter.

But with the exception of Southern California, where an expected 30,000 more defense workers will get pink slips this year, a majority of the states most dependent on defense are doing relatively well. In Massachusetts, the boom in mutual funds has helped lift employment in Boston's mutual-fund and money-management sector by 10%. The Washington (D.C.) suburbs, home to thousands of defense-related workers, are seeing unemployment rates of just above 3%--half the national average. For one, Electronic Data Systems Corp. is "aggressively seeking people," according to a spokesman who expects heavy business from Pentagon outsourcing of payroll and other data services.

SHIFTING GEARS. In some cases, it is defense contractors themselves that have created jobs by shifting into commercial activities or selling overseas. Martin Marietta Corp.'s missile manufacturing complex in Orlando has shed roughly 10,000 jobs since the late 1980s. But it is aggressively courting foreign business, which now accounts for 50% of revenues, up from 5% five years ago. Harris Corp., a Melbourne (Fla.) defense electronics firm, has moved 1,500 of its Electronic Systems Sector's 8,000 employees into nondefense work. Its latest win: A $100 million contract to provide communications links for the Metropolitan Washington Airports Authority.

The job rebound involves more than defense conversion, though. In states such as Florida, diverse economies are creating employment in a host of industries. AT&T, for instance, employs more than 800 people at a silicon chip plant outside Orlando and is transferring new workers from out of state. Overall, says Barnett Banks Inc. economist John Godfrey, Central Florida should lose about 2,000 defense jobs a year, over the next six years. But the regional economy created 28,000 jobs last year alone.

St. Louis, too, has bounced back quickly from the defense meltdown. Home to McDonnell Douglas Corp., builder of F-15 and F/A-18 fighter jets, the area suffered in late 1990 and early 1991 as "Mac" laid off 10,000 workers in six months. By January, 1991, the unemployment rate had soared to 7.6%.

And today? Unemployment is a paltry 4.8%. A study by the St. Louis County Economic Council found that by 1992, two-thirds of those laid off by McDonnell had found work, with nearly half in the same pay range. One big provider of new jobs: the auto industry, with Chrysler Corp. starting up a second plant next year and General Motors Corp. reopening a plant to make vans.

DEEP CUTS. Even in Connecticut, which has not rebounded so quickly, the unemployment rate has fallen to 5.1% since peaking at 7.5% in 1992. Exports of nonmilitary goods have increased by $3 billion in the past four years--roughly the same amount by which defense contracts have fallen in the state.

Connecticut is seeing an upsurge in employment in drug research and manufacturing as well as production of high-tech industrial instruments. Drugmaker Miles Inc. built a $130 million research center in West Haven two years ago and is expanding steadily. Pfizer Inc. has boosted its research workforce in Groton by 40% since 1989. Even Electric Boat is hiring a few people in design and engineering as it begins work on a new class of attack submarines. "The Connecticut economy has shown quite an ability to rebound in ways that aren't always predictable," says state economic research director Jeffrey Blodgett.

Even in battered California, things aren't all bad. John Oldenburg's story illustrates that. For seven years, he worked as an engineer at General Dynamics' San Diego-based Convair division, helping design and test Centaur rockets. But a future in the aerospace business seemed highly uncertain. "Every week I was going to another friend's good-bye luncheon," Oldenburg recalls. So last July, Oldenburg followed a fellow aerospace engineer to Aldila Inc., a maker of high-tech golfing gear. Now, instead of rockets, Oldenburg designs graphite shafts.

Good news in defense, of course, is relative. The long-term picture for California, Connecticut, and other states where military contracts are part of the economic fabric is one of continued downsizing. Many of the deepest cuts could come in a few years, as existing programs end production runs and new ones are mothballed. Defense workers can only hope the economy will keep surprising people with its vigor--and yield more jobs at good wages.

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