Saving the 'safety net' for defense production

If the United States has to expand its productive capacities rapidly in order to accelerate the national defense buildup, can the industrial system deliver - in quantity, in quality, and, most important, in time?

There are at present about 25,000 prime contractors engaged in defense-related production. As a practice, these companies farm out a great deal of work to 50,000 subcontractors.

Defense-related production may or may not make up the bulk of this group's annual output, but they are, to all intents and purposes, an important element in the ''safety net'' of defense production today.

More often than not, when we hear about production problems, it is this subcontractor group that we are talking about. They are shrinking in number and many are obviously in need of industrial rehabilitation and modernization. Some of their machinery and equipment is very old.

It is hard to believe that the average age of a machine-tool operator today is 58 - and he is probably looking forward to retirement within the next few years. Significantly, his replacement has not been found yet, nor is he in training, if he has been found. We will need 572,000 by 1987.

The same allegations can be made, for differing reasons, concerning tool and die makers; we will need 223,000 by 1987. Electrical engineers? 360,000 by 1987. Metal molders? 60,000 by 1987. Computer specialists? 547,000 by 1987. Mechanics? 1.8 million by 1987. The list is almost endless.

The problem is undeniable. We face serious shortages in a number of critical vocations and skills. These delinquencies will be much more apparent if and when the US gets into ''surge'' production in certain key industries.

Should we, then, throw up our hands and conclude: ''What's the use? We can never catch up or get back into the ball game?''

Nothing could be further from the truth - especially if you remember your history a bit.

A good example was given by one of the witnesses before Congress last year who directed attention to an article from Fortune magazine that summed up America's state of industrial preparedness: ''No programs to organize manpower exist; widespread shortages of critical materials; means for industrial expansion seriously constrained; no plans for national priorities; threat of destabilizing inflation; lack of public understanding of a job ahead; and uncertain will.''

The irony of that summary lies in the fact that the article he referred to was published in 1941 - about four months before Pearl Harbor.

We know what followed:

We did the job of building up our industrial base so well that we actually reached a point where we could produce more than could be lost to the Axis powers in combat (in March 1944 alone we produced 9,117 aircraft).

By the same logic, if we must ''go to war'' today, let it be against unused capacity, the idleness of our labor population, and our failure to maintain competitiveness in a world economy.

To this end, in February I introduced along with other members of the Banking Committee a series of amendments to the Defense Production Act of 1950 (DPA).

This law has been used from time to time to attack all manner of problems. It was used to get the Alaska pipeline underway - cutting at least one year from the pipeline's time schedule at a saving of hundreds of millions of dollars to the American taxpayer. More recently it was used to launch the nation's synthetic fuels production effort.

By these new amendments, the President would be directed to get modernization of our defense industrial base underway. He could use authority already provided by the DPA - mainly financial incentives such as loan guarantees, purchase agreements, price guarantees, and direct loans. We would try to zero this effort in on the more than 50,000 defense-related contractors and suppliers - by and large small and medium-sized businesses - for that is the point where the real obstacles to ''revving up'' can be expected to occur.

The legislation proposes a five-year program, costing $5 billion, excluding $ 250 million a year for manpower training and retraining and $100 million for colleges and universities. Regarding the latter, it is clear that ''we are eating up our seed corn'' since many students and faculty are being recruited to industry, often because this gives them access to more modern equipment and working conditions. We believe they will be encouraged to stay on at the university if this need for ''modernization'' can be met. Their valued input for R&D and the future cannot be overlooked.

All of this may appear to be very ambitious and costly. In fact, it is not. Our experiences with the DPA in the past show that for every $1 provided, we have been able to leverage $10 - largely in credit assistance. That means we would likely be able to leverage about $50 billion in assistance - and for the modernization of a critical portion of the nation's industrial base.

Even if the program is undertaken on a more conservative 2-for-1 basis, a minimum of $10 billion would be pumped into the system. I am inclined to believe that if economic conditions were to worsen further, those leverage ratios would rise.

The advantages of the program are numerous.

* It would accelerate the re-engineering and retooling of a number of industries, and hurry the process of their modernization.

* It could vastly improve our ability to be more competitive on a worldwide basis in essential industries such as machine tooling, forging, diecasting, and the like.

* It could aid many of our skilled and professional workers through retraining and upgrading of their skills, and provide new recruiting opportunities within the labor force for those left without hope or chance for entry.

The current status of America's defense industrial base is a matter of debate and doubt. Its revitalization could, however, begin the process of general revival for the nation.

It is a task we must undertake with all deliberate speed and considerable dedication, for the somber fact is that the US cannot be a first-rate world power with a second-rate industrial base.